Dejan Lovern and Eduardo scored to keep Croatia level with Belgium at the top of the standings and inflict a major blow to Wales's hopes of reaching the World Cup.
Wales dominated the early stages and midfielder Joe Ledley burst into the penalty area before being tripped by Lovern, Gareth Bale calmly converting the spot-kick after 21 minutes.
The in-form Tottenham Hotspur winger wasted a good chance to double the hosts' advantage when he blazed a shot over the bar.
Croatia enjoyed far more possession in the second half and were rewarded for their pressure when Lovern's 30-yard strike flashed past Wales goalkeeper Boaz Myhill.
Striker Eduardo nipped in for the winner three minutes from time, controlling Ivica Olic's cross and clipping the ball crisply through Myhill's legs on the half-volley.
- Sports & Recreation