The Dragons suffer a disappointing defeat in Zagreb as the home side dominated possession and took the win thanks to a goal in each half from their two strikers
The home side were dominant in the first half, and took the lead in the 26th minute after a defensive error from Ashley Williams and Lewis Price gifted Mario Mandzukic an easy goal.
Croatia continued to dominate in the second half, and doubled their advantage thanks to a tap-in from Eduardo.
The home side made three changes to their team, but could find no place for Everton's Nikica Jelavic, who was among the substitutes.
Meanwhile, the Welsh made one change to the side that beat Scotland, with Andy King coming in for the suspended Aaron Ramsey.
The Croatians dominated possession in the early stages, with midfielder Luka Modric having a confident penalty appeal rejected by the referee in the 13th minute.
It took until the 19th minute for either side to create a clear chance, and unsurprisingly it was Gareth Bale who did so for Wales, cutting in from the right and letting fly with a shot that went just wide.
However, the Croatians had a chance of their own just four minutes later, and it took a good save from Price to keep out a stinging volley from Milan Badelj.
In the 26th minute Wales fell behind, as a short back pass from Williams put Price under a lot of pressure, and Mandzukic was on hand to take advantage of the error and give the home side the lead.
The hosts should have doubled their lead just four minutes later, but Eduardo inexplicably missed a free header.
The Welsh were struggling to keep the ball for any time at all, and were grateful to some superb saves from Price that kept the deficit to just one goal at half-time.
The second half began in a similar vein, and the Croats were unlucky not to extend their lead in the 47th minute as Mandzukic saw a shot deflected behind by Williams.
The Welsh simply could not get hold of the ball, and Mandzukic was in once again one-on-one with Price in the 56th minute, but the Welshman saved well once again.
However, Croatia were not to be denied, and just a minute later doubled their advantage as Eduardo tapped home after a corner caused havoc in the Wales penalty area.
The away side were being placed under immense pressure by the hosts, with Modric dominating the midfield.
However, the Welsh thought they had pulled a goal back after a superb header from Andy King, but Croatian goalkeeper Stipe Pletikosa was on the line to catch the ball safely.
This scare seemed to galvanise the home side, and once again they had a superb chance as Eduardo saw a header cannon off the crossbar before the ensuing goalmouth scramble saw Wales just keep the ball out.
From then on, Croatia continued to dominate possession, and were able to hold on for the win despite some mazy runs from Bale.