Rafael Nadal suffered his second defeat in as many matches after going down 3-6 6-1 7-5 against Alex de Minaur at the United Cup.
The 22-time grand slam champion, who was also beaten by Great Britain's Cameron Norrie in his opening match, is still seeking his first victory of the season with the Australian Open just around the corner.
Home favourite De Minaur delighted the Sydney crowd by recovering from a set and break down to claim his maiden win over the world number two.
"I think it's definitely up there [as one of my best wins]," he said. "It's one of those achievements that you have unlocked in your career.
"But also, it's a big win for myself, one that I really needed. I'm going to cherish and use, take all the confidence from this and be able to hopefully take it to have a good [Australian] summer."
Spain and Australia are unable to progress to the City Finals, but Nuria Parrizas Diaz levelled the Group D tie with a 6-1 6-3 victory over Maddison Inglis.
The USA, who required just two points against Germany to advance to the next stage, set up a showdown with Great Britain after Taylor Fritz and Madison Keys enjoyed straight-set successes over Alexander Zverev and Jule Niemeier respectively.
Italy moved to the brink of joining them in the City Finals after taking a 2-0 lead over Norway. Lorenzo Musetti overcame Viktor Durasovic in straight sets, while Martina Trevisan edged out Malene Helgo in three.
Greece require one win from their final three matches against Belgium to also advance, Stefanos Tsitsipas hit 12 aces on the way to defeating David Goffin 6-3 6-2 to level the Group A showdown at 1-1.
Poland's winner-takes-all Group B clash with Switzerland is also finely poised at 1-1. World number one Iga Swiatek beat Belinda Bencic 6-3 7-6 (7-3), before Marc-Andrea Huesler's 6-3 6-2 victory against Daniel Michalski.