Swedish skip Niklas Edin outsmarted his opposite number for the second time in a week - winning 7-6 to book the remaining semi-final slot against Kevin Martin's unbeaten Canada.
It started badly for Murdoch's rink on the first end, when Euan Byers missed a regulation take-out to hand Sweden an advantage they patiently protected.
Murdoch battled to keep his team in the match, missing several key shots by fractions, as the cool heads of Sweden prevailed, with Edin and third Sebastian Kraupp both high in the averages.
But the momentum started to swing as the Scottish skip slowly hauled back a 5-2 deficit, winning three ends against the hammer to restore parity.
Sweden pinched back a single in the eighth end while an excellent take out from Murdoch gave him a final stone advantage for decisive tenth.
But Edin came back strongly, with an under-pressure double take out restricting Great Britain to an equalising single, which forced an extra end.
However, this time Sweden had the advantage of the hammer, which was to prove telling as Edin held his nerve to secure victory by the slenderest margin.
Murdoch struggled to hide his emotions after the game.
Four years ago Murdoch admitted he was 'heartbroken' after losing a bronze medal play-off to the United States in Turin.
But he rebounded to win two World Championships in three years, in addition to securing the European title, meaning he arrived here as Britain's top gold medal prospect.
However, defeat to Sweden means his performance in Vancouver is even more disappointing than 2006.
"We've trained six days a week for the last two years and we've come into these Olympics as world champions but the week just didn't go for us," said Murdoch.
"This feels as bad as Turin, maybe even worse. When you sacrifice so much and train as hard as we do, it's hard to take and it's going to take a long time to get over.
"We should have beaten more teams this week but we didn't finish games off in the way we usually do.
"It's heartbreaking, it's the worst thing possible for our team."
Edin was rightly buzzing following his win and claims he has nothing to fear from Canada, who are unbeaten at these Olympics.
"It's going to be tough for us but all teams in the semis have a shot," he said.
"We need a good start and get some breaks and maybe we have a chance to beat them.
"They are the best team here, but we have nothing to lose and they have everything to lose."