The Silver Ferns couldn't recover from a shambolic third quarter and have lost 57-53 to Malawi in pool play at the Gold Coast Commonwealth Games.
It's the first time Malawi have ever beaten the Silver Ferns and leaves New Zealand's already slender medal hopes hanging in the balance.
The loss means the Kiwis now have to beat England in pool play to be assured of a place in the top four and a shot at the play-offs.
Coach Janine Southby says the result is hugely disheartening.
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"The players are guttered and disappointed with themselves," Southby told Newshub after the match.
"We had a ten goal lead in the third quarter and that is not good enough. We have another game tomorrow so we need to pick ourselves up and go again."
The Ferns' solid zone defence shut down Malawi in the midcourt early on, with Maria Folau and Te Paea Selby-Rickit clinical in converting the turnovers for an 18-11 lead.
Bailey Mes took over from Selby-Rickit in the circle, but the Kiwi lead narrowed to just 25-23 midway through the spell.
It took a late four-goal rally right on half-time for New Zealand's lead to open out to 32-25 at the break.
Southby again tweaked her attack in the third and the Ferns looked comfortable in opening out a 10-goal lead midway through the spell.
But with Mwai Kumwenda in spectacular form, Malawi launched a stirring comeback, which earned them a 42-41 lead going into the final quarter.
It was a lead that a determined and stubborn Malawi were never going to concede, and they held on for a well-earned win.
New Zealand were coming off a rest day, while Malawi had been edged 54-52 by Uganda on Saturday.
The Silver Ferns now have one loss to go with earlier big wins over Wales (70-44) and Uganda (64-51), and face Scotland on Monday before Wednesday's key clash against England.