Wales' slim hopes of qualifying for the World Cup were all but finished by Austria at the Millennium Stadium.
Two goals from Ivica Vastic and Martin Stranzl spoiled John Toshack's first competitive game in charge of Wales.
First, substitute Vastic made an Austrian counter-attack pay, bursting into the Welsh area to fire home left-footed into the roof of the net.
Then a horrible mix-up between Danny Gabbidon and Robert Page let Stranzl nip in and poke home a second.
It was a disappointing result for captain Ryan Giggs in his 50th appearance for Wales, and Toshack knows he now has a major rebuilding task ahead of him.
Much of the pre-match talk had been about Wales' golden attacking quartet of Giggs, John Hartson, Craig Bellamy, and Simon Davies.
But Giggs and Davies spent much of the first 10 minutes tracking a series of dangerous runs from the Austrian midfield.
John Hartson is just denied by Austria goalkeeper Helge Payer
Slowly Wales began to assert themselves and fashioned a gilt-edged opportunity for Carl Robinson.
Giggs' floated cross found the Sunderland midfielder unmarked eight yards out, but Robinson headed weakly into the arms of Helge Payer.
Stranzl served warning of his attacking threat with a shot into the side netting, then Danny Coyne superbly held René Aufhauser's shot.
With Welsh passes not finding their intended final targets, Giggs tried a more direct approach.
The skipper gathered the ball on the right flank, before jinking inside and releasing a pile-driver off his left foot that Payer did well to save at the near post.
The game stayed just as open after the break and Wales should have gone ahead, Carl Fletcher finding Hartson in space only for the striker to be foiled by Payer.
Wales should really have been chasing the game soon after, but Andreas Ivanschitz contrived to blast over the bar with the goal at his mercy.
The alarm bells continued to ring though, as Roland Kirchler broke through and only a fantastic block from Delaney saved Wales.
But finally the thin red line crumbled, as Austria substitute Vastic played a one-two with Ivanschitz before smashing a left-foot shot high into the goal.
Wales were soon two down and out of the game as Page and Gabbidon got in an awful mess, leaving Stranzl to pick up the loose ball and lash home from close range.
Wales now face Austria in Vienna on Wednesday as they try to salvage points and pride in Group Six.
Wales: Coyne, Delaney, Gabbidon, Page, Ricketts, Robinson, Fletcher, Bellamy, Davies (Earnshaw 75), Giggs, Hartson.
Subs Not Used: Edwards, Roberts, James Collins, Williams, Koumas, Jones.
Booked: Fletcher, Page.
Austria: Payer, Katzer, Stranzl, Pogatetz, Ehmann, Aufhauser, Dospel, Kirchler, Mayrleb (Mair 87), Ivanschitz (Hieblinger 90), Haas (Vastic 78).
Subs Not Used: Schranz, Standfest, Amerhauser, Kovacevic.
Booked: Pogatetz, Katzer.
Goals: Vastic 82, Stranzl 86.
Ref: Paul Allaerts (Belgium).