But on a seasonally adjusted basis UK house prices fell by 0.2% between August and September.
The year-on-year increase reflected growth of 1.8% in England, 0.9% in Scotland and 1.6% in Wales which was offset by a decline of 10.1% in Northern Ireland.
David Brown, commercial director of LSL Property Services, said: “The slight dip in house prices in September went hand in hand with a lull in buyer activity in August as prospective homeowners put their house hunting on hold until after the Olympics.
“But the good news is that prices have already shown signs of climbing again with demand rising. Funding for Lending is starting to gain traction playing an increasingly important role in lending levels.”
Annual house price increases in England were driven by a 5.2% rise in London and a 2.4% increase in the North East.
Excluding London and the South East UK house prices increased by 0.8% in the 12 months to September 2012.
Independent buying agent Gabby Adler said: “London's strong performance continued to drive the housing market, a trend which is expected to carry on into next year, while in other parts of the country there have been considerable falls in values.
“Yet even in London there are price reductions as vendors become more realistic on pricing. No price bracket seems immune with prices cut on high-value, multi-million pound properties down to entry level homes.”
The index showed that prices of new dwellings fell by 2% during the 12 months to September 2012 while the price of pre-owned dwellings increased by 1.8% in the same period.
But Dan McLeod, director of estate agent Atkinson McLeod, said the mixed messages from various indices was confusing.
He said: “A week or so ago Halifax said house prices were down 1.7% compared to a year ago. This week the Office for National Statistics tells us they're up by 1.7% relative to a year ago.
"Although the various indices calculate house prices in different ways what's clear is that it's still difficult if not impossible to gauge what's happening within the property market at the moment.”
McLeod added: "The volatility of prices comes down to the low level of transactions which invariably cause house price indices to jump around from one month to the next.
"The only thing that appears a given in the current property market is that London continues to outperform. The capital is in a league of its own.”
