On a night of last-32, second leg upsets, Atletico's struggling La Liga rivals Villarreal also suffered the ignominy of being eliminated by third-tier opposition when they fell 2-0 at home to Mirandes to exit 3-1 on aggregate.
The reverse at the Madrigal prompted the departure of coach Juan Carlos Garrido, with the club hovering just above the relegation places in the league following a spate of injuries to key players.
Real Zaragoza, who are bottom of La Liga, were undone by second-division Alcorcon 3-1 over the two legs and Cordoba, also of the second tier, claimed the scalp of top-flight side Real Betis on the away goals rule after the tie finished 2-2.
After losing last week's first leg 2-1 at Albacete, who have local hero Andres Iniesta as a major shareholder and the name of the Barcelona midfielder's vineyard across their shirt fronts, Atletico conceded after just under 20 seconds at their Calderon stadium.
The Manchegans stole the ball immediately following the kick-off and forward Victor Curto surged forward before sending a low drive skidding into the bottom corner.
Atletico had plenty of possession but hardly threatened the visitors' goal and exit the competition amid media reports an agreement with former Argentina captain Diego Simeone to replace Manzano has already been sealed.
Simeone, a fan favourite when he played for Madrid's second club, quit as coach of Argentine side Racing Club on Tuesday.
The 42-year-old was quoted as saying in Spanish media on Wednesday that he had not signed any preliminary accord with Atletico but he had spoken with the club and was hoping a deal could be agreed.
"There is a chance," he said. "Right now I don't have a team and they [Atletico] have called me."
Manzano began his second stint as Atletico coach in June, coinciding with the departure of prized forwards Sergio Aguero and Diego Forlan and the arrival of striker Radamel Falcao and midfielders Diego and Arda Turan.
He has overseen an erratic campaign which included a 5-0 drubbing at champions Barcelona in La Liga and has left his side in 10th with only 19 points from 16 matches.
At his post-match news conference, he apologised to the fans, who targeted the 55-year-old known as 'the professor', the players and the club's board with disgruntled chants during the game.
"There are no adjectives we can find to explain that this is a great disappointment and a disaster," Manzano said.
"I will give the players time off until December 29 and then we'll have to think over everything to see what we did right and what we need to look at."
Cup holders Real Madrid wrapped up a 7-1 aggregate win over third-tier Ponferradina on Tuesday and 2011 runners-up Barcelona have a 1-0 advantage when they host third-tier Hospitalet on Thursday.
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