The side went down 16-14 to Counties-Manukau at Forsyth Barr Stadium in a match that was close the whole way, as neither side could hang on to the ball to mount pressure.
Counties-Manukau replacement back Joe Reynolds kicked a penalty from right in front in the 80th minute to give his side the win. It led 10-7 at the break.
It was a tough loss to take for the home side, which has now lost three games in a row after starting the season with six straight victories.
Stand-in captain Sam Anderson-Heather said the side was not far away from victory.
"We went 6-0 to start with and that had not been done for a long time. It is now just a matter of getting that magic back," he said.
"To only lose that game tonight by a couple of points [means] it is definitely there and it is just about putting it together for the full 80 [minutes]. We did it for 77 minutes and in the end that was just not good enough.
"We had a relatively good game plan going into the game. We executed it in parts and that is why we were ahead. But just unlucky at the end and that cost us.
"It was a tough loss but you can’t sit on it too long."
Otago was up 14-13 with 10 minutes left and was pressing its advantage.
Flanker James Lentjes was tackled just before the line and in-passed to fullback Michael Collins, who could not catch the ball when crossing the tryline.
Otago then won a penalty and went for the sideline instead of a penalty and winger Mitchell Scott was penalised for dangerous play in the resulting breakdown.
The visitors rolled down the field and the penalty eventually came.
Otago coach Cory Brown said it was a tough loss to swallow. The side had thrown everything into the match against a large and strong side.
Brown was disappointed the referee did not take stronger action against the Counties-Manukau side with its offending under its own posts.
"A shame to lose it, really. At times there we had opportunities we just did not complete," Brown said.
"There are little things we are just not quite getting right. I thought they gave away a lot of penalties and no-one went to the bin. That is a big question mark, in my opinion."
There were few line breaks in the game.
Both sides struggled with handling and neither could kick clear.
Otago’s best were flanker Lentjes and second five-eighth Tei Walden, while Anderson-Heather had a strong match.
Mitre 10 Cup
The scores
Counties-Manukau 16
Jimmy Tupou try; Piers Francis pen, con; Joe Reynolds 2 pen
Otago 14
Craig Millar, Naulia Dawai tries; Scott Eade 2 con
Halftime: 10-7 Counties-Manukau