Wales had defender Craig Morgan sent off on their way to defeat.
Austria went ahead in the ninth minute through Roman Kienast and grabbed their second goal when Wales were tiring with 10 minutes left through Jurgen Samuel.
But Wales felt they were denied two penalties, both for fouls on striker Craig Davies, in a very physical match.
Morgan received his marching orders after an innocuous mid-air collision with Alex Pollhuber, who the Welsh later accused of tumbling theatrically.
Austria U21: Ozcan, Berger, Fuchs (Kulovits 81), Garics, Gercaliu, Kienast (Konrad 85), Pollhuber, Prager, Saumel, Schiemer (Metz 60), Mimm.
Subs Not Used: Probst, Sonnleitner, Thonhofer, Holzl.
Booked: Schiemer, Pollhuber.
Goals: Kienast 9, Saumel 80.
Wales U21: Price, Beevers, Morgan, Duffy, Gilbert, Birchall (Cotterill 81), Arron Davies, Ledley, Crofts, Caliste (Pipe 46), Craig Davies.
Subs Not Used: Worgan, Crowall, Critchell, Anthony, Parslow.
Sent Off: Morgan (57).
Att: 500
Ref: Ararat Tshagharyan (Armenia).