Paris Saint-Germain suffered a shock 1-0 defeat against Brazilian side Botafogo at the Club World Cup value earlier left their hope for qualification in balance.
A first half goal of the Brazilian international Igor Jesus proved the difference between the ruling champions of Europe and South America in the Pasadena Rose Bowl.
PSG was tipped on a large scale as one of the hot favorites to win the new 32-team tournament after a stunning campaign that culminated in their pounding 5-0 win against Inter Milan in the Champions League final last month.
They had also not lost in a competition since 3 May and Luis Enrique took the opportunity to rotate his side in California. In particular, Goncalo Ramos started in the middle of Ousmane Dembele, who remains injured.
Their hope of winning a victory, making them the first side to reach the last-16, were disturbed by Botafogo's brave display.
Fresh of their opening 4-0 win over Atletico Madrid in group B, PSG flew out of the blocks and Khvicha Kvaratskhelia tested goalkeeper John after just two minutes.
But it was Botafogo who broke the impasse against the game at 36 minutes.
Jefferson Savarino spent Jesus on goal with an inch-perfect, defense-splitting pass and the striker did well for Willian Pacho too much before he went beyond Gianluigi Donnarumma, thanks to a slight deflection.
PSG, who had scored 19 goals in their last five games, flowed forward in search of a level and seemed to have found one when Bradley Barcola shot home.
However, the goal was excluded from offside and Botafogo held a famous victory.
“I think it's normal,” said PSG boss Luis Enrique. 'This competition is very intense and difficult. Every team is motivated, especially against our team.
'I think our team sometimes struggled against their defense. I think Botafogo is one of the most difficult defensive teams in the tournament. '
After he closed the serial scorers, his Botafogo is now firmly on track for the last -16 and are confronted with Atletico Madrid – again in Pasadena – in their last game on Monday.
The last time a Champions League holder lost to a South -American side, came back in 2012, when Corinthian's Chelsea stunned in the final of the World Cup club.
To prevent an elimination with a red face, PSG MLS-Outfit Seattle Sounders must beat that were beaten out of the tournament in their last group match.