Martin sat 7-points clear of Francesco Bagnaia heading into the race and looked set to deliver a further blow to the reigning champion, who was starting just 13th on the grid.
When the red lights went out, Martin duly rocketed past his rivals from row two of the grid, then asserted a safe buffer over Maverick Vinales.
But disaster struck at mid-distance when Martin lost control at Turn 11, sliding into a costly first DNF since COTA in April.
The Pramac Ducati rider looked stunned as he watched from trackside, while Bagnaia inflicted maximum punishment by catching and passing Vinales to claim a shock victory and retook the title lead.
“It was perfect,” Martin said of his race up until the fall. “A great start and then I was trying to make the gap a bit bigger. When I saw ‘2.8s’ I was really surprised. So I said ‘OK, it's time to maybe keep calm now’.”
Martin then revealed the cause of his crucial mistake came at the previous corner.
“I was a bit wide in corner 10 and it was a bit dirty, so when I went into 11, I lost the front doing the same as the lap before. But shit happens.
“I was feeling super good… My mistake was to run one metre wide on the dirt and then the corner after I crashed. This was my mistake.
“I was still pushing. Still 14 laps to go, so I was still focused on being fast… But I felt I was running in a safe mode, let's say.
“I think I did an amazing race until that point. I am the fastest at the moment, so I have to be calm and there are still 10 races to go. So still a long way.”
Martin - who had overturned Bagnaia’s once 66-point advantage over the previous eight races up to and including Saturday’s Sprint - now heads into next weekend’s Australian round trailing Bagnaia by 18 points.
Seeking to become the first ever satellite world champion of the ‘MotoGP’ era (since 2002), Martin will now revert to the role of hunter and insists he won’t dwell on the error.
“I'm happy that my speed is there and I've been fast at all the tracks,” he said. “[The mistake] is just [a matter of] statistics. It was coming sooner or later and finally, it was here.
“So still for the remaining races, I feel confident that I can be fighting for the victory.”
Praise for Pecco
Despite his own disappointment, Martin was quick to credit an ‘amazing’ comeback ride from Bagnaia, who had managed just eighth place in the Sprint.
“I didn’t know at that point [when I crashed] that he was already third. I was just trying to make my own race. Yeah, I'm impressed about his comeback but we all know that Pecco on Sundays is a bit stronger and he did an amazing job,” said Martin.
The #89 will restart his pursuit of Bagnaia at Phillip Island on Friday: “I'm again the guy chasing, so now I hope he’s a bit scared again!”