Militao was red-carded with just nine minutes played for bringing down striker Sergio Leon when in on goal. Shortly afterwards, Marco Asensio gave Madrid the lead on the counter-attack, slotting past keeper Aitor Fernandez after being played in by Toni Kroos.
Levante equalised with half an hour played, Jose Luis Morales firing a first-time volley past Thibaut Courtois, and after half-time the visitors missed the chance to go ahead when Courtois brilliantly saved Roger Marti's penalty.
Marti made up for that miss on 78 minutes, finishing off a well-worked short corner routine, as Madrid lost their first La Liga game since November.
Madrid had responded well to the back-to-back cup disappointments with their 4-1 win at Alaves last weekend and looked like taking another victory here when Asensio opened the scoring. It was a special goal, especially under the circumstances following the red card, made by the outstanding vision and technique of Kroos.
That lead didn't last, though, and in truth, it was only Courtois who kept the team in the game for much longer than their performance deserved. The goalkeeper's display was one of few positives on a frustrating afternoon.
Madrid's makeshift defence was always going to be tested by a dangerous Levante, a team with just one loss in 11 matches in all competitions, boasting two of La Liga's top 10 goal scorers in Morales and Marti.
Neither the hapless Eder Militao nor the ineffectual Alvaro Odriozola have ever looked like serious candidates to become regulars in the starting XI. Here, Militao departed early, and Odriozola looked a liability throughout.
The result leaves Madrid seven points behind league leaders Atletico, who have two games in hand, and they will have to put together a truly extraordinary run of form in what's left of the season to overtake their city rivals.
Manager rating out of 10
5 -- With Zinedine Zidane still absent with COVID-19, assistant David Bettoni had just 16 first-team players to choose from here, with particular problems in defence with Sergio Ramos, Dani Carvajal, Lucas Vazquez and Nacho all missing. That meant playing Odriozola -- very much a last resort at right-back -- and Militao, while the rest of the team picked itself. With the game in the balance at 1-1, an early change saw Vinicius Junior introduced for Eden Hazard, and promptly concede a penalty. There was no late rally or surge of Madrid attacks as the game drew to a close, with a lack of game-changers on the bench.
Player ratings (1-10; 10 = best. Players introduced after 70 minutes get no rating)
GK Thibaut Courtois, 8 -- Made a crucial penalty save in the second half, which followed a really smart first-half double stop from Roger Marti. Couldn't get near Morales' sweetly struck equaliser in between.
DF Alvaro Odriozola, 5 -- Just his second league start this season. Left Morales alone in space for the equaliser, although he wasn't the only guilty party there. An alarming, ongoing decline from a top prospect three years ago to a virtual bystander now.
DF Raphael Varane, 6 -- The defensive leader in the absence of Ramos, and even more so after Militao was sent off. Raced to help cover there, getting back into a position that some will argue meant the red card should have been yellow.
DF Eder Militao, 3 -- Followed an encouraging display against Alaves with a very early bath here. His red card for a clumsy challenge was Real Madrid's fastest ever for an outfield player in La Liga.
DF Ferland Mendy, 6 -- Lucky to escape punishment for a challenge on Gonzalo Melero in the build-up to Madrid's opening goal. Carelessly gave the ball away midway through the first half to put his team in trouble.
MF Casemiro, 6 -- Dropped to centre-back to partner Varane after Militao's sending off, a role he's perfectly capable of playing well. Shared some of the blame for Morales' goal, though.
MF Toni Kroos, 7 -- A lovely assist for Asensio's goal, playing the forward in on goal with one of the passes of the season. That's three assists in the last two games for the German.
MF Luka Modric, 6 -- One incredible second-half pass for Asensio with the outside of his boot. Otherwise, a little quieter than usual.
FW Eden Hazard, 6 -- Has started four of the last five games. Has looked to be making progress lately, although there have been false dawns before. Subbed off before an hour had been played.
FW Marco Asensio, 7 -- Scored the opener, showing great composure to finish after running half the length of the pitch. Had a chance to grab a second when he brought down a long ball over the top with a gorgeous first touch.
FW Karim Benzema, 6 -- Surprisingly quiet after his brace against Alaves last weekend. His substitution with the team behind and desperate for a goal was a surprise.
FW Vinicius Junior, 5 -- Replaced Hazard and his first move was to give away a penalty for a foul on Carlos Clerc right on the edge of the box.
FW Mariano Diaz, N/R -- Came on for Benzema at 2-1 down and didn't make an impact. The only centre-forward alternative in the squad now after Luka Jovic's loan departure.
MF Sergio Arribas, N/R -- Played the last 10 minutes and couldn't help the team get back into the game.