Palace's development side fell to only their second defeat in five games as they went down to Swansea City at Tooting and Mitcham's KNK Stadium, but nearly pulled off a thrilling comeback.
The hosts fell three goals behind after just over half an hour as Swansea dominated the first 45 minutes, but after the break the Eagles came out fighting and goals from Sullay Kaikai and Jake Gray set-up a thrilling conclusion but ultimately they ran out of time.
It took just 40 seconds for the scoring to begin when Ryan Hedges cut the ball across the face of goal which was half-cleared, but James Loveridge was on hand to drill home the loose ball and hand the Swans a quick-fire lead.
Palace enjoyed the better of the play after that setback but it was Swansea who continued to carve out the opportunities. Hedges once again slipped through the middle and found Loveridge but the striker's cross was tamely headed wide by Kenji Gorre.
But he made up for that a minute later when right-back Connor Roberts and the impressive Hedges combined to help the ball into the former Manchester United youngster's path, and he backheeled it back into the midfielder who neatly dinked the ball over the advancing Chris Kettings to complete a typically-Swansea move.
All the chances continued to be created by the Welsh side and Kettings got down low to stop a deflected effort by Gorre, but on 33 minutes the third goal arrived when some more neat passing around the edge of the area saw Adam King steam in from a central position and hammer the ball home.
The Eagles came out much more positively after the interval and Gray should have hit the target with a shot from just inside the area three minutes after the restart, but further attempts from Fisayo Adarabioyo and Hiram Boateng failed to really trouble Oli Davies in the Swans' goal.
He was beaten just before the hour mark when Luke Croll diverted a corner goalwards but a opposition defender was well positioned on the post the clear the ball to safety, but the pressure finally told on 66 minutes when after Kyle de Silva had seen an attempt blocked by Davies, Gray was pulled back in the area by Roberts and Kaikai stepped up to send the keeper the wrong way from 12 yards.
The comeback looked on 10 minutes from time when for the second time in quick succession substitute Morgan Ferrier forced Davies to block with his feet, but the rebound fell to Gray to calmly side-footed the ball home from 12 yards to give Palace hope.
However the Swans managed to get over the line and leapfrogged their hosts in the table as Palace slip to third position.
Palace: Kettings, Egbo, Fryers (Black 71), Boateng, Magri, Croll, Gray, O'Keefe (Ferrier 78), Adarabioyo (de Silva 62), Kaikai, Thomas. Subs not used: Pain, George.
Swansea: Davies, Roberts, Shephard, H Jones, Gogic, Gallifuoco, Hedges, King, Loveridge (Copp 71), Sheehan (O Jones 71), Gorre. Subs not used: Samuel, J Jones, Zabret.