A late blunder in Vienna from Wales keeper Danny Coyne boosted Austria's hopes of World Cup qualification.
The visitors' inexperienced defence had been shaky but held out until the 87th minute when Rene Aufhauser's shot from outside the box bobbled under Coyne.
Wales' new-look attack of Craig Bellamy and Ryan Giggs created plentiful chances, but the pacy pair were denied by outstanding goalkeeper Helge Payer.
The loss ended Wales' slim mathematical chance of reaching Germany 2006.
Austria, though, stay just four points behind Poland and on the tail of Group Six leaders England.
Wales manager John Toshack had changed tactics after the 2-0 loss to the same opposition in Cardiff on Saturday, dropping John Hartson and using Danny Gabbidon as a sweeper.
Giggs and Bellamy immediately began to trouble Austria, Bellamy's pace winning him a one-on-one with the keeper in the first minute.
The Celtic striker shot weakly, but was unlucky to have a goal disallowed soon afterwards.
He won a shoulder-to-shoulder challenge with Ernst Dospel before chipping Payer, but referee Manuel Gonzalez blew for a foul on the Austrian defender.
Giggs went close with a ball across the box, before squandering a chance created by Bellamy as he shot tamely at Payer's legs.
The home side slowly worked their way into the game and began to trouble Wales' five-man defence.
Andreas Ivanschitz blazed their best chance over the bar, but the half ended with another wasted Wales opportunity, Bellamy shooting high and wide after failing to pick up Giggs' supporting run.
Wales' inexperienced side thought they had earned a draw
Payer did superbly to deny Giggs in the 51st minute after a fine run and cross from Ricketts, before the home side began to get a grip on the game.
James Collins put in an excellent block to deny Austria substitute Ivica Vastic, then the ever-dangerous Ivanschitz profited from loose marking on the edge of the area to fire a snap shot against the bar.
A stray Austria back pass went unpunished as Payer foiled Bellamy yet again, before a break out from the home side through Wales' fragile midfield ended with Vastic curling the ball onto Coyne's post.
Toshack's team looked to have done enough to earn a draw, but with time slipping away Aufhauser's innocuous shot dribbled through the hapless Coyne's legs to send the Ernst Happel Stadium into raptures.
Austria: Payer, Katzer, Stranzl, Dospel (Kiesenebner 84), Ehmann, Aufhauser, Kirchler (Mair 77), Kuhbauer, Mayrleb, Ivanschitz, Haas (Vastic 55).
Subs Not Used: Schranz, Standfest, Hieblinger, Amerhauser.
Booked: Aufhauser, Mayrleb, Vastic.
Goals: Aufhauser 87.
Wales: Coyne, Delaney, Gabbidon, James Collins (Page 58), Partridge, Ricketts, Davies, Fletcher, Robinson, Bellamy, Giggs.
Subs Not Used: Jones, Edwards, Koumas, Roberts, Hartson, Earnshaw.
Booked: Gabbidon, Partridge.
Ref: Manuel Enrique Mejuto Gonzalez (Spain).