With Barcelona only able to draw with Getafe on Saturday, Diego Simeone's had the chance to open up a six-point lead at the top of the table, but saw their winless run at Levante extended to six.
After going six games in all competitions without conceding a goal, Atletico found themselves behind early on when Filipe Luis diverted a corner into his own net.
The visitors pushed for an equaliser but found a resolute Levante side in their way, goalkeeper Keylor Navas pulling off a string of fine saves, and David Barral popped up to double the hosts' lead, blowing the title race wide open.
Real Madrid now appear favourites for the title - a 33rd Liga crown will be confirmed if Carlo Ancelotti's men win their remaining games and Atletico fail to pick up three points at Barca on the final day, with the Catalan giants also still in with a shout.
Atletico's fate remains in their own hands - two wins from their final two games will secure the league - but they will have to lift themselves from a desperately disappointing day.
The game was only seven minutes old when the hosts took the lead, through the unfortunate Filipe.
Papakouli Diop swung a corner in from the right, which was missed by a group of Atletico defenders at the front post and inadvertently turned home by the Brazil international's chest.
Atletico should have been level in the 14th minute only for Raul Garcia to see his close-range shot saved by Navas and David Villa sky the rebound over the crossbar.
Mohamed Sissoko and Diego Costa were perhaps lucky to stay on the pitch just after the half-hour when they clashed, referee Jose Gonzalez taking no action despite the Atletico forward appearing to push his head into the Mali international.
Navas was called into action once more before the break, saving Toby Alderweireld's low shot at his near post, Simeone introducing Adrian Lopez and Arda Turan at the break in the search of goals.
The pair made a swift impact on the game, Adrian seeing a shot blocked and the Turkey international heading over.
Atletico's frustration continued to build and only excellent defending from Loukas Vyntra denied Filipe from making amends just after the hour.
Costa was next to go close but he was unable to divert a Diego cross on goal, and moments later Alderweireld saw Navas claw another long-range effort out.
After such resilient defending, the hosts broke on the counter-attack and doubled their lead as Victor found Barral, who held off a challenge and fired low past Thibaut Courtois.
When Adrian was able to beat Navas with 13 minutes remaining, he too was left frustrated as the ball clipped the post on its way wide.
Simeone's side looked to have ran out of ideas and they were unable to muster any further openings, as Levante mathematically secured their top-flight status and provided a huge boost to Atletico's title rivals.
