Fans were left outraged as two judges controversially scored the fight in favour of the challenger Timothy Bradley in a split decision.
Shock as Manny Pacquiao loses welterweight title bout
But afterwards the fighter insisted he 'absolutely' believed he had won the bout.
Judge Jerry Roth scored the bout 115-113 for Pacquiao, while C.J. Ross and Duane Ford both saw it 115-113 for Bradley, even though it appeared Pacquiao hurt Bradley throughout the fight - particularly with his straight left hand.
Outraged fans booed the announcement and the new champion as he was interviewed after the fight. Pacquiao's wife, Jinkee, and sons Manny jnr and Michael - watching their father fight in Las Vegas for the first time - looked stunned.
The result handed Pacquiao (54-4-2) his first loss since the unanimous 12-round decision to Erik Morales in March 2005, while Bradley improved to 29-0 with 12 wins inside the distance.
Bradley came out aggressive and got the better of the exchanges early in the first round before Pacquiao hurt the American with three straight lefts late in the round.
Pacquiao continued to find Bradley with straight lefts in the next two rounds, while also landing right hooks to the body and the occasional over-hand left.
Bradley stayed in front of him and kept punching but didn't appear to be hurting the champion.
In the fourth Pacquiao hurt Bradley with a series of blows, including one flurry during which a strong left to the American's jaw left him stumbling backwards. Two rounds later he had Bradley backed up against the ropes as the crowd favorite let loose with a barrage of punches.
A tenacious Bradley continued to challenge Pacquiao, and it was Bradley's work in the final three rounds that turned the tide for the judges, even though by then he was complaining to his corner of pain in his right foot, which he had twisted in an earlier round.
Afterwards Pacquiao said he thought he had done enough to win.
"Absolutely, yes," he said, to cheers from the crowd.
However, Pacquiao wasn't prepared to criticize the judging.
"It's part of the game," said the fighter, who earned a controversial majority decision of his own over Juan Manuel Marquez in November to keep his winning streak intact.
"He's a strong puncher, he rocked me a couple of times in the fight, but I held my ground and fought to the end," Bradley said.
"This is boxing."
"Every round was pretty close," Bradley said. "Pacquiao won some of the early rounds. I controlled the later rounds with my jab.
"I need to go home and review the tape," he added.
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