
The second-round setback against the 2.08-metre Karlovic leaves Blake with all to play for next week at the concluding Paris Masters, where final positions for the eight-man Masters Cup in Shanghai will be determined.
Blake, last year's losing finalist in China against Roger Federer, stands provisional tenth in the race for the eight-man season wrapup.
Against this month's Stockholm champion Karlovic, Blake got off to a good start as he lifted the opening set.
But the huge serves of the 2.08-metre Croatian began to tell, with Blake's baseline game unable to make an impression.
The American who last played Basle in 2003 found himself facing three Karlovic match points, saving one before going down to defeats with a return into the net after just shy of two hours.
Finn Jarkko Nieminen produced his second set of heroics in three days, as he rallied to knock out sixth seed Guillermo Canas 6-4, 3-6, 7-5.
After coming from 1-5 down in his opening match, Nieminen produced his best effort in saving the day against Canas, who beat Federer twice in a row last spring.
The Finn saved a match point in the tenth game of the final set to level at five games apiece.
One hold later and a concluding break put Nieminen into the last eight in his first Basel appearance.
Federer was playing the second round later against Argentine Juan Del Potro.