In 2010, 25% of the 12,364 personnel surveyed across the armed forces said morale was "high", compared with 15% of the 12,667 surveyed last year. The percentage of those saying morale was "low" has risen from 33% to 50%.
Shadow defence secretary Jim Murphy blamed government cuts but the MoD said "tough decisions" had to be taken.
The survey of attitudes in the armed forces, which is conducted annually, found that morale across all army ranks had fallen. It has been published in the wake of the Strategic Defence and Security Review, which saw the Army affected more than the other services.
In the Army, where 3,723 surveyed were surveyed in 2010, 32% said morale was "high" but only 18% of the 3,203 surveyed in 2012 gave the same response. Those saying it was "low" has risen from 24% to 45%.
The percentage of Army officers who said morale was "high" has dropped from 30% of 1,093 respondents in 2010, to 7% of the 1,120 interviewed in 2012. Those officers saying morale was "low" rose from 25% in 2010, to 63% in 2012.
Mr Murphy said the figures were a "terrible reflection" of the government's defence policy and the government needed to "sit up, listen and change course in response to this worrying trend".
"A vital benchmark of success is our forces' morale and yet it has been damaged and dented by David Cameron and [defence secretary] Philip Hammond," he said.
"A botched review and cuts to vital support have made our forces feel under-valued and over-stretched. Cutting the Army by 20,000 while we have so many of our forces serving in Afghanistan is a real blow. Tough decisions are necessary but they must be taken with respect not recklessness."
Defence Minister Peter Luff said the government had had to make "tough decisions" to get the defence budget back into balance, including reducing the size of the armed forces.
He said any change was bound to create uncertainty but "morale on operations remained high".
"The resilience of our personnel should not be underestimated. We are nearing the end of a very difficult period in defence and hope to see morale slowly recovering over the next couple of years. Our armed forces remain focused on doing their job, whether it is in Afghanistan or at home in the UK for the Olympics," he said.
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