The loss not only dashed their hopes of securing the championship but also mathematically ruled them out of the race.
Diego Simeone's side, who had been in scintillating form since the World Cup, were surprisingly lacklustre against bottom-of-the-table Elche.
In a match that showcased Atletico's offensive struggles, Elche capitalized on a defensive blunder to snatch a vital victory.
Back in action! pic.twitter.com/Pjql5Uyszw— Atlético de Madrid (@atletienglish) May 14, 2023
The only goal of the match came in the 41st minute when Fidel Chaves took advantage of a disastrous mistake by Atletico goalkeeper Ivo Grbic.
A mishandled throw-in left the winger with a gaping net, leaving Grbic helpless as Elche celebrated their fourth win of the season.
With this defeat, Atletico Madrid now sit in third place, trailing league leaders Barcelona by an insurmountable margin.
Barcelona has the opportunity to seal the LaLiga title later on Sunday if they secure a victory against city rivals Espanyol.
Atletico, despite their impressive campaign, find themselves unable to catch up with the frontrunners.
Adding to Atletico's disappointment, cross-town rivals Real Madrid leapfrogged them into second place after securing a win against Getafe on Saturday.
Real Madrid's triumph, coupled with Atletico's misfortune, saw them surpass their city rivals by two points in the league standings.