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Economists had expected sales growth of 2.7%.
On a month-on-month basis sales were up 1.4% and increased by 3.1% in the three months to December, compared with the same period the previous year.
The main contributors to the 3.5% increase were retailers in textiles, clothing, footwear and leather goods, which contributed 1.4 percentage points.
Retailers in hardware, paint and glass contributed 1.1 percentage points and general dealers contributed 0.9 of a percentage point.
The highest annual growth rates were recorded for retailers in hardware, paint and glass, which increased by 19.8 percent, while retailers in textiles, clothing, footwear and leather goods increased by 5.8%.
Retailers in food, beverages and tobacco in specialised stores increased by 3.8% and all other retailers increased by four percent.
Stats SA said seasonally adjusted retail trade sales increased by 1.2% in the fourth quarter of 2013 compared with the previous quarter.
Investec economist Kamilla Kaplan said the retail sales growth fell to 3.5% year-on-year in December from a prior 4.4 percent year-on-year.
"The outcome was above market expectations of a 2.8% year-on-year increase," she said in a statement.
"On a seasonally adjusted basis, retail sales growth strengthened to 1.2% from the strike-suppressed 0.5 percent quarter three of 2013, as striking workers did not receive an income."
She said based on that, the retail sector's contribution to the gross domestic product increased.
