Celta's stroll past the Madrid giants, which featured a hat-trick from the veteran Bulgarian striker Lubo Penev, moved the Galician side up to second place, seven points behind the leaders Barcelona.
Valencia slipped to third, a further point back, after they were surprisingly held to a 1-1 draw at home to Extremadura. Real Mallorca went fourth with a 1-0 win at home to Valladolid, Dani hitting the winner, but Deportivo La Coruna lost further ground as they were beaten 2-1 at Alaves.
Real Madrid are now back in fifth place, trailing their arch-rivals Barcelona by 10 points, and Toshack admitted their primary objective was no longer first place. "Now we have to take one game at a time and basically see what happens," a deflated Toshack told reporters after the match. "That's our only objective.
Real, who went into the game with three key defenders suspended, were always likely to struggle against Celta's free-scoring attack. But the manner of their capitulation was extraordinary as the home side raced into a 3-0 lead within 15 minutes. Penev was left unmarked to nod in the first at the near post on eight minutes, Mazinho was left similarly clear three minutes later as he swept in the second and Penev was on hand again on the quarter-hour as he received the ball with his back to goal and used his strength to turn and lash home.
Toshack reacted by bringing on Fernando Morientes for the midfielder Guti and the switch bore immediate fruit as the young striker burst through on the left to thread a shot past Richard Dutruel and in off the far post. But Celta re-established their three-goal advantage within a minute as an attempted clearance from Christian Karembeu dropped at Alexander Mostovoi's feet inside the area. The Russian finished nervelessly.
The pace understandably slackened after the break but Celta were still able to create a host of scoring chances, only one of which was taken, Penev completing his hat-trick with a tap-in after German goalkeeper Bodo Illgner had palmed away a long-range free-kick.
Toshack was left bemused by his side's no-show in defence and refused to use the absence of Fernando Hierro, Roberto Carlos and Ivan Campo as an excuse. "I have no defence for that display," the Welshman admitted. "There's nothing positive to say. We all failed."
Barcelona secured a scrappy 3-2 victory over nine-man Tenerife on Saturday. The champions were made to work hard by their relegation-threatened hosts, who fought back gamely from 2-0 and 3-1 down despite having two players sent off for dissent in a bad-tempered second half.
Tenerife, outclassed in a first half that ended 3-1, gave everything in the second as they recovered to 3-2 with a great goal from Roy Makaay after 56 minutes. But the sending-off of their first-half scorer Antonio Pinilla midway through the second half, followed by a second red for Alexis Suarez in injury time, ended their hopes.
Barcelona, who netted through Philip Cocu, Rivaldo and Albert Celades, have won their last five league matches.
Milan recovered from a goal down to defeat Parma 2-1 at San Siro yesterday and put the pressure on the Italian Serie A leaders Lazio.
Maurizio Ganz scored Milan's winner after the veteran defender Paolo Maldini had cancelled out Abel Balbo's 38th-minute opener. The victory took Milan up to second place behind Lazio, one point ahead of Fiorentina, who were held 2-2 at home by Bari.
Juventus needed an 81st-minute equaliser from Angelo Di Livio to salvage a 2-2 home draw with Bologna, after surrendering an early lead and squandering a penalty. Internazionale returned to Salernitana for the first time in 50 years and probably wished they had never made the trip, losing 2-0 to the second-from-bottom side and having Ivan Zamorano sent-off in the last minute for dissent.
Fifth-placed Udinese maintained their hopes of an automatic place in next season's European Cup with a 2-1 victory at Cagliari, courtesy of goals from the Dane, Martin Jorgensen, and the Belgian, Johan Walem.
"It's best to keep your feet on the ground in football," said Milan's coach Alberto Zaccheroni after a victory which put Lazio in his side's sights for the first time this year.
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