Murray knocked out of Rafa Nadal Open
The 32-year-old Scot struggled to maintain his performance levels after breaking Viola's serve twice to win the first set in 51 minutes.
Andy Murray's winning run at the Rafa Nadal Open was halted by world number 240 Matteo Viola, who won 3-6 6-4 7-6 (3).
Murray, competing in an ATP Challenger Tour event for the first time since 2005, had secured back-to-back wins in Mallorca as he continues his comeback from hip surgery, but came unstuck against an inspired opponent.
The 32-year-old Scot struggled to maintain his performance levels after breaking Viola's serve twice to win the first set in 51 minutes.
Speaking after the match, Murray said: "I'm cramping, very tired. I enjoyed (being here), I would have liked to have played more matches but it was good.
"I played two competitive matches. Physically, I need to get better."
The former world number one never recovered after falling 3-0 behind in the second, and although he fought back from 2-0 down after losing his opening service game in the final set, he did not produce his best.
Both players held serve from 2-2 to force a tie-break, which Viola went on to dominate, winning the first three points and going 6-2 up.
Murray hit a brilliant forehand return on Viola's first match point but served a double fault on his second to hand the Italian the match.
Murray had completed straight-set wins over teenager Imran Sibille and Norbert Gombos in the previous rounds but did not look comfortable against Viola, whose highest career singles ranking is 118.
Three-time major winner Murray will consider his defeat a setback as he builds up his match fitness after having a metal hip implanted in January in a bid to save his career.
He pulled out of the doubles at the US Open to concentrate on his singles career.