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An own goal by defender Jose Bosingwa after five minutes handed victory to Wolves, who climbed out of the relegation zone as Chelsea's miserable run of form - just one win in nine matches - continued.
Ancelotti, who had admitted before the match that he was lucky not to have been sacked, will now face fresh scrutiny after a result which leaves Chelsea nine points adrift of leaders Manchester United, who also have a game in hand.
"At this moment it's very difficult to explain what's happening to us," a stunned Ancelotti told Sky Sports. "We have to keep going ... we have to stay focused more on the little details. Because the little details lose the game."
In the battle for second place, Arsenal and Manchester City fought out a 0-0 stalemate at the Emirates. Arsenal dominated throughout but were unable to find their way through a blanket City defence.
The game ended on a sour note after Arsenal defender Bacary Sagna and City's Pablo Zabaleta were given red cards after clashing on the touchline.
The other big headline of the night came at Ewood Park, where Blackburn piled the pressure on Liverpool manager Roy Hodgson with a 3-1 victory over the troubled Merseysiders.
Hodgson, reportedly set to be replaced by the club's American owners, fielded a strong side, with Steven Gerrard and Fernando Torres both starting.
But the result was virtually sealed by half-time, with Martin Olsson opening the scoring on 32 minutes before Benjani Mwaruwari doubled the lead six minutes later. Benjani rubbed salt into the wound with Blackburn's third on 57 minutes.
Gerrard scored a late consolation but hopes of an unlikely comeback were extinguished when the Liverpool skipper missed a late spot-kick.
Afterwards Hodgson refused to discuss his future at Anfield.
"I am not prepared to talk about that because obviously I am depressed enough with the performance and the result," Hodgson said. "I have no comments to make and I have no intention of answering any questions on the subject."
Asked for his feelings after yet another crushing defeat, Hodgson replied: "Dejection, bitter disappointment, frustration."
"I am very disappointed for the fans who gave us good support and saw the team concede the goals we did," he said.
"Unfortunately when you are Liverpool and you lose away to Blackburn there is nothing that can be said which will put a positive slant or make the situation look any brighter."
Elsewhere, Tottenham were unable to capitalise on Chelsea's defeat as they crashed 2-1 at Everton.
Everton got off to a dream start when Louis Saha rifled in his first league goal for 11 months after only three minutes.
Spurs' response was almost immediate, Rafael van der Vaart levelling on 11 minutes. But Everton snaffled a second-half winner from Seamus Coleman which means Spurs remain just one point clear of fifth placed Chelsea.
Aston Villa's abysmal run of recent form continued as they slumped to a 1-0 defeat at home to Sunderland at Villa Park.
An 80th-minute goal from Phillip Bardsley secured the points for the Black Cats as Villa's seventh defeat in 10 matches sent Gerard Houllier's men, who had Emile Heskey sent-off, into the relegation zone.
West Ham's hopes of following up their New Year's Day victory over Wolves with another three points were given a brutal mauling at St James Park as Newcastle recorded a crushing 5-0 victory.
Despite missing strikers Andy Carroll and Shola Ameobi, the Magpies were too strong for the Hammers, Irish striker Leon Best recording a superb hat-trick as Kevin Nolan and Peter Lovenkrands chipped in with the other goals.
The defeat sent West Ham back to the bottom of the table.
Wigan remain second from bottom after a 1-1 draw with Bolton at the Reebok Stadium.
A goal from Bolton's Rodrigo Moreno on 54 minutes looked to have condemned the Latics to their second consecutive defeat before Ronnie Stam popped up with an 80th-minute equaliser to secure the draw.
