Chawrasia, winner of three European Tour titles, all co-sanctioned with Asian Tour and at home in India, shot 73 and 74 in the first two rounds at the Real Club, which is one of the toughest courses in Europe.
Chawrasia was five-over for 36 holes and lying 37th as the cut was expected to fall at around seven-over, the highest on European Tour this season.
And Chawrasia was expected to move another few spots up to inside Top-30 as others completed their round at the tough Par-71 Valderrama course.
Chawrasia, who teed off from the 10th on the second day, was going fine till arriving at the seventh tee, for what was his 16th hole in the second round. He ran into a double bogey, where he had a bogey on first day and stumbled and despite a birdie on eighth, he finished at three-over 74 on a day when under-par scores were very difficult.
Overnight leader Alexander Levy (66 in first round) had dropped dramatically with four bogeys in first five holes.
Larrazabal, the home favourite, came into day two shots behind the Frenchman, Levy, and, while the rest of the field failed to make any impression on the upper echelons of the leaderboard, he got to seven under after ten holes to open up a two-shot lead.
But a bogey on the second and bunker trouble on the third dropped him back to his starting position of three under before he parred his way home for an impressive 71.
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