Novak Djokovic's hopes of reaching the last four of the Barclays ATP World Tour Finals suffered a blow after he was beaten 3-6 6-3 6-3 by Janko Tipsarevic.
The world number one made a bright start but regressed dramatically as the contest at the O2 Arena in London wore on.
In contrast Tipsarevic, who is playing in the competition as an alternate after Andy Murray withdrew, grew in stature over the course of the match to claim a first-ever win over his compatriot.
Djokovic must now hope that Tomas Berdych loses to David Ferrer in the evening session on Friday as a win of any kind will send the Czech player through to the semi-finals.
"I feel it was an interesting match with a lot of ups and downs from both Novak and me," Tipsarevic toldSky Sports after his victory.
"I feel extremely happy and lucky to be here. I stated the season at 49 (in the world rankings) and if somebody told me that his is the way I would finish this year I would take it in a heartbeat."
The 27-year-old stand-in was already out of contention for a semi-final spot but a first victory in four meetings with Djokovic would have provided a fine end to the best season of his career.
But Djokovic, who had been so unimpressive in a straight-sets loss to Ferrer last time out, took control of the first set with a break in the fourth game.
He was moving well and hitting the ball with much more authority than he had two days earlier, with Tipsarevic having to fight off two set points at 5-2 when the net twice came to his opponent's aid.
That earned Tipsarevic the support of the crowd and there was a loud cheer when he managed to hold, but he was merely delaying the inevitable as Djokovic had no trouble serving the set out.
The errors began to creep into Djokovic's game at the start of the second set, though, and Tipsarevic capitalised in the sixth game when a drop shot from the top seed failed to clear the net.
The world number nine was trading blow for blow with his countryman but he could not consolidate the break as some incredible scrambling defence from Djokovic drew the mistake.
However, the underdog was undeterred and with Djokovic suddenly looking weary he made his move, clinching the set at the second opportunity when his fellow Serbian sent a return well long.
That made the result of the match largely irrelevant for Djokovic, with a Berdych win later now guaranteed to send the Czech through regardless of which way the third set went.
Djokovic was broken again at the start of the decider, with the zip of the first set absent from his shots, and he quickly slipped three match points down on his own serve.
He saved two with good serves but dumped a forehand into the net on the third to give Tipsarevic a first win in the competition.
"He deserved to win," said Djokovic. "He was the better player in the second part of the match.
"It's never easy to perform against somebody you know very well. Regardless who is across the net, obviously you want to win. That was the case today. But it wasn't meant to be.
"I'm glad he got the chance to play and got the chance to win as well. It can give him a lot of confidence for next year."
