Lleyton Hewitt's Monte Carlo run came to a halt after the baseliner was knocked out of the Masters tournament by Germany's Rainer Schuettler.
Having recovered from the loss of the first set and leading 3-0 in the decider, Hewitt looked in command before Schuettler got a second wind to beat him 6-4, 3-6, 6-4.
The Australian former world number one had not won a match in the principality before this year, and will see this defeat as a lost opportunity.
Victory would have given him a quarter-final against Tim Henman -- a player he has beaten in all seven of their meetings.
"It's disappointing to lose this way, when you lead 3-0 and 15-40 in the third set," Hewitt said.
"But overall it's not so bad. I did not know what to expect when I came here.
"I hit the ball well... I just need to start my matches better. I lost the first set in my three matches."
Henman will face the fourth-seeded Schuettler on Friday after battling his way into the quarters by beating gritty Chilean Nicolas Massu 3-6, 6-4, 6-3.
After a poor first set the Briton regrouped and overcame the ninth seed with some flamboyant strokeplay.
"After that first set where I was struggling with my rhythm I knew it couldn't get much worse so I just started to relax," Henman said.
"After my practice at the weekend I wasn't expecting much, to be honest, but I have picked up my form.
"It just shows you find a way to win and things can start happening."
PATCHY RESULTS
Things are happening for towering Russian Marat Safin.
Rejuvenated by the European clay, the former world number one overpowered Australian Wayne Arthurs 6-4, 6-2.
After some patchy recent hardcourt results, Safin followed his runners-up spot in Estoril last week by equalling his best result on the principality courts.
He reached the last eight here in 2002 before losing to Carlos Moya.
Flying high in only his second claycourt tournament of the year, the former U.S. Open champion freely admitted a lucky draw had enabled him to avoid claycourt specialists.
"I just played two attacking players and it's better to be up against these guys than to run for miles against Argentines or Spaniards," said the Russian who beat Max Mirnyi in the previous round.
Against Arthurs, who grabbed a place in the draw as a lucky loser when top seed Andy Roddick pulled out, Safin only had to return his opponent's serve to impose his game in the 67 minutes of the match.
"Wayne is extremely hard to play on grass or hardcourt but on clay, it's something else. He served well, but it's much too slow for him," Safin said.
In the quarter-finals, he will at last face the challenge of a real specialist when he meets Spain's Alberto Martin, who dismissed Argentine Agustin Calleri 6-3, 3-6, 7-6.
Argentine Guillermo Coria also motored into the quarters, recovering from a poor start to beat Romania's Andrei Pavel 4-6, 6-1, 6-4.
The third seed lost his serve three times in the opening set but not once after that as he flexed his claycourt muscles on a sun-baked centre court.
Runner-up here last year, Coria is the highest seed remaining after the withdrawal of Roddick before the event and the first-round exit of 2003 champion Juan Carlos Ferrero.
He will face fellow-Argentine David Nalbandian for a place in the semi-finals.
Nalbandian, playing his first tournament since a six-week injury layoff, crushed Frenchman Fabrice Santoro 6-3, 6-2.
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