Nedgradering af mysql2 rubygem fra version 0.4.7 til 0.3.21 løste mit problem.
Nedenstående trin jeg fulgte
rails new blog -d mysql # created application with mysql as database
gem uninstall mysql2 #uninstalled mysql2-0.4.7
Gemfile :
gem 'mysql2', '0.3.21' #Gemfile changed mysql2 version to 0.3.21
bundle update mysql2 #installed mysql2-0.3.21 version