Netherlands scored both their goals from penalty corners through Rogier Hoffman (32nd minute) and Mink van der Weerden (54th), while India's lone goal came from the stick of VR Raghunath (38th).
Despite the loss, India booked a quarterfinal berth after reigning Olympic champions Germany drew 4-4 with Argentina in another Pool B match.
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Argentina are at fourth spot with five points while Ireland are fifth with three points. Canada are at the bottom with no point.
Top four finishers from Pool A and Pool B qualify for the quarterfinals.
The India-Netherlands match witnessed intense drama in the final seconds as India did not bow out without a fight against the world ranked 2 side.
Trailing 1-2 with four minutes left, India withdrew goalkeeper PR Sreejesh for an additional forward and pressed hard for the equaliser.
Their efforts bore fruit as India earned their fourth penalty corner six seconds from the hooter after appealing for a video referral.
That penalty corner resulted in four more back-to-back short corners but the Indian dragflick battery of Rupinder Pal Singh, who took four tries, and Raghunath failed to break the Dutch defence led by goalkeeper Jaap Stockmann.
The Men in Blue, thus, suffered another heart-breaking defeat after the late loss to reigning Olympic champions Germany in their second Pool B game.
Read our full coverage on the 2016 Rio Olympics
A draw against Netherlands today would have sealed India's place in the quarterfinals. But they now will have to wait for the result of their last pool encounter against Canada tomorrow.
India are now placed third in Pool B with six points behind leaders Netherlands (10) and Germany (9). Argentina are placed fourth with four points.
It was a quiet first two quarters from India as well as Netherlands as both the teams preferred to play it safe, concentrating more on holding possession of the ball.
India, though, enjoyed the better share of possession in the opening 15 minutes but they failed to create any scoring chances.
The Dutch, on the other hand, preferred to sit back and get a hold of India's game and relied mostly on counters but, just like their opponents, failed to have a shot at the goal.
The action was a little more in the second quarter as Netherlands slowly and steadily started to put pressure on the Indian defence.
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