The third-ranked Swiss and US Open champion was knocked out by German qualifier Jan-Lennard Struff 3-6, 7-6 (6), 7-6 (1) on Wednesday, reports Xinhua.
Wawrinka started out strong, but ran out of gas after being forced into a second-set tiebreak.
Struff broke in the seventh game of the third set but Wawrinka broke back to send the match into a decisive tiebreak, which the German easily won.
Earlier on Wednesday evening, World No. 2 Murray struggled in his Paris Masters opener but managed to rally past Fernando Verdasco 6-3, 6-7 (5), 7-5 to keep his No. 1 hopes alive.
The 29-year-old Briton needed two and a half hours to see off his opponent.
He faced two break points at 5-5 in the deciding set, and received a time violation warning from umpire Damien Dumusois as he composed himself, before breaking to love in the 12th game to win the match.
It was a 16th victory in a row for Murray, who is bidding for a fourth straight title after winning trophies in Beijing, Shanghai and Vienna.
Murray will play 13th seeded Frenchman Lucas Pouille in the last 16 on Thursday. The pair have met twice in 2016 with Murray winning the clashes on clay at the Italian Open in Rome in May and on hard court at the Shanghai Masters in October.
“Lucas is one of the best of the young players coming through at the moment,” said Murray. “He’s just outside the top 10 but he’ll be inside it very soon. I had to play well to beat him in Shanghai and my level will have to be good if I want to win.”
The Scot needs to at least reach the final here to stand a chance of overhauling Novak Djokovic on Monday as the Serbian began his defending campaign with a stright sets defeat of Gilles Muller.
Top seed Djokovic, 29, claimed the encounter 6-3, 6-4 in 80 minutes to advance to the last 16 where he will play the 14th seed Grigor Dimitrov.
“I try to focus on playing match after match and putting quality and value into my game,” he said. “And I know that if I do that, I can challenge anybody in the world on any surface and in any conditions. So I focus on my own quality and what I bring to the court.”
Also on Wednesday, 5th seed Kei Nishikori of Japan beat Serbian Viktor Troicki 6-2, 7-5 to make through into the last 16, while Frenchman Gilles Simons and American John Isner upset seeded opponents to claim spots in the last 16 as well.