Wales’ men saw their hopes of topping Pool A at the FIH Series Finals dashed after losing for the first time in the tournament in Kuala Lumpur.
Coach Zak Jones’ side slipped to a 2-0 defeat in humid conditions against Australia, ranked five places above them at 19 in the world.
Wales had topped the group after stunning Canada, the world’s No 10 team, 3-1 in their opening game before beating Belarus 2-1 in the second.
But despite finishing level on points with Austria and Canada, Wales finished third on goal difference.
They will face Malaysia in the next stage on Wednesday after the hosts lost their final Pool B game against Italy 4-2 to finish second in the group.
Malaysia are ranked 13 in the world.
The game against Austria was bound to be tight given there are just a few places between the teams in the world rankings.
But it was the Austrians who got the crucial opener after a goal-less first-half with a 37th minute strike from Dominic Uher.
Wales came close to levelling before Florian Steyrer sealed victory with just five minutes left.