O’Sullivan seemed to be headed in the right direction after a decisive 3-0 victory over amateur runner-up Kayden Brierley, in which he recorded breaks of 72 and a brace of 53.
However, the defending UK and Masters champion was only able to tie 2-2 with Mitchell Mann, meaning he needed to win his final match of the day.
That didn’t happen as He Guoqiang put on a fantastic performance and helped the Chinese cueist to a 3-0 triumph at O’Sullivan’s expense with scores of 80, 77, and 57.
After losing to Mann in the first round, He made a remarkable comeback, and after defeating Brierley 3-0, his record of two victories and one loss was sufficient to advance.
Had Mann defeated Brierley in the last frame, he would have taken first place in a thrilling conclusion; however, the Englishman was forced to settle for a tie after losing the final frame.
In Group 12, Jack Lisowski topped the standings with an undefeated stretch of games at the Mattioli Arena in Leicester.
Still bidding for a maiden ranking title, Lisowski reached the last 32 of this competition with the aid of a pair of victories over Anton Kazakov and Jiang Jun.
The Englishman needed a single point from his last match against Mark Davis, and that’s exactly what he got as he won the opening two frames to guarantee his progress.
The penultimate day of a lengthy Stage One in Championship League Snooker takes place on Wednesday, meanwhile.
Ali Carter stars in Group 5, with the Captain set to face Xing Zihao, tour rookie Kreishh Gurbaxani, and amateur Joshua Thomand.
In Group 16, Chinese pair Zhou Yuelong and Fan Zhengyi will battle for first alongside Alfie Burden and Mink Nutcharut.