Title favourites Brazil, inspired by dazzling forward Neymar, swept into the quarter-finals after coming from behind to beat Belarus 3-1 at Old Trafford with Neymar scoring and creating the other two.
They were joined in the last eight by Japan, who followed up their win over Spain on Thursday with another 1-0 win over Morocco.
Spain hit the woodwork three times against Honduras after conceding an early goal in Newcastle.
A strong Spanish appeal for a penalty was waved away in the final minutes and at the final whistle they surrounded the referee in an animated protest.
Spain's Under-23 team in London featured three players from the senior squad that retained their European title on July 1.
Spain coach Luis Milla, asked if the success of the senior team had put more pressure on his side, said: "Yes it is possible that the pressure did impact on us, but this is a team full of players who compete at the highest level.
"As coaches we have to an analyse why we have been knocked out. We are out of the Olympic Games - but we prepared very well for it. "
"As you can imagine everyone is very sad, everyone is disappointed. We worked well, we played well and put on a good show and we still believe in the way we play and our ideology."
Honduras lost all three group matches in Beijing four years ago but held on after Roger Espinoza's cross from the left was met by Jerry Bengtson who rose superbly above Jordi Alba to power his header past David de Gea.
"It was a tense second half. They had lots of chances and we did well to keep calm when they were threatening," said Bengtson. "It was very hard work but we did well to beat them."
Hosts Britain won their first Olympic match since they last competed in Rome in 1960, playing well to outlast a spirited United Arab Emirates side 3-1 at Wembley.
Their opening goal came from skipper Ryan Giggs, who at 38 years and 243 days became the oldest man to appear in the Olympic football finals and also the oldest scorer after heading home in the 16th minute.
Britain sealed victory with late goals from substitutes Scott Sinclair and Daniel Sturridge and top Group A on goals scored from Senegal who stunned Uruguay 2-0 in the first match at Wembley.
The win was even more remarkable as Senegal were reduced to 10 men when Abdoulaye Ba was red carded for hauling down Uruguay skipper Luis Suarez after 30 minutes.
Two goals from Moussa Konate before half-time were enough to send Uruguay, back in the Olympics for the first time since their second successive gold medal in 1928, to a first ever Olympic defeat.
INSPIRED PERFORMANCE
Brazil became the first side to qualify for the next stage and thoroughly deserved their win over Belarus, courtesy of a header from Alexandre Pato from a Neymar cross, a 30 metre free-kick from Neymar and a brilliantly-taken third by Oscar after being set up by
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