Ruud, without a tournament title in seven years as a professional, disposed of the world No 3 3-6, 6-3, 6-4, 6-4 on a windy outside court at Melbourne Park. The third seed, Pat Rafter, the biggest name left in the men's draw, hit form, however, to remain on course for a replay of the US Open final against his compatriot, Mark Philippoussis, in the fourth round.
Rafter rushed to a 6-2, 6-4, 6-4 win over Mark Woodforde, another Australian, while the big-serving Philippoussis earlier saw off the American Michael Chang, the 14th seed beating the 1989 French Open champion 7-6, 2-6, 6-3, 5-7, 7-5.
The loss of Corretja in the second round means the tournament is without the top three men in the game, after Pete Sampras's decision to miss the season-opening Grand Slam and the late withdrawal of world No 2 Marcelo Rios with a back injury.
"I don't have to be disappointed because I played really well in the last couple of months," Corretja said. "It's just a pity it happened here because it's a Grand Slam."
The Spaniard, the French Open runner-up, never looked comfortable against the aggressive Norwegian, who was happy to rely on his whippy forehand and play from well behind the baseline to take advantage of a swirling wind.
Corretja's loss was another blow for Spain, which now sends an armada of players to Melbourne each year but saw 10 of its best players sink without trace on Tuesday. "It was not that bad [for Spain]... It was terrible," Corretja said. Ruud, 26, is better known on the lesser Challenger circuit and has a string of Grand Slam first and second round exits next to his name stretching back to 1992.
Rafter, the 1995 champion Andre Agassi and Tim Henman are the main contenders left in what is being referred to as the "most open" Open in years.
Agassi faces a clear run to the semi-finals, but Rafter has the toughest road ahead and must survive against the in-form Swede Thomas Enqvist in the next round before he can face Philippoussis. Then he would have a likely quarter-final against Henman.
In the women's singles, the world No 1 Lindsay Davenport crushed Argentina's Florencia Labat 6-2, 6-1 without quite hitting her best form. The seeds Jana Novotna, Conchita Martinez, Dominique van Roost and Natasha Zvereva also advanced.
The fifth seed, Venus Williams, was in similarly aggressive form, reeling off 11 games in a row to crush Sweden's Asa Carlsson 6-2, 6-1.
The Swiss eighth seed, Patty Schnyder, was the highest-ranked woman to be knocked out when she lost 6-7, 6-4, 6-3 to the Frenchwoman Amelie Mauresmo.
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