Croatia late show sinks Wales in Swansea
Dejan Lovren and Eduardo scored to keep Croatia level with Belgium at the top of the standings and inflict a major blow to Wales's hopes of reaching the World Cup.
"We made too many mistakes but after throwing an extra man forward we dominated and deserved our win after showing character," Lovren told Croatian TV.
Wales dominated the early stages and midfielder Joe Ledley burst into the penalty area before being tripped by Lovren, Gareth Bale calmly converting the spot-kick after 21 minutes.
The in-form Tottenham Hotspur winger wasted a good chance to double the hosts' advantage when he blazed a shot over the bar.
Croatia enjoyed far more possession in the second half and were rewarded for their pressure when Lovren's 30-yard strike flashed past Wales goalkeeper Boaz Myhill.
Striker Eduardo nipped in for the winner three minutes from time, controlling Ivica Olic's cross and clipping the ball crisply through Myhill's legs on the half-volley.