Mason, OH -- (Sports Network) - Rafael Nadal continues to win, while world No. 1 Roger Federer was a stunning third-round loser Thursday against Ivo Karlovic at the $2.615 million Western & Southern Financial Group Masters tennis event.

The second-seeded Nadal of Spain wasn't in top form but was still too much for Tommy Haas of Germany and reached the quarterfinals with a 6-4, 7-6 (7-0), straight set win at the Lindner Family Tennis Center.

The Wimbledon and French Open champion Nadal has won his last five events and is now riding a 31-match winning streak, including a title at last week's Masters Series tournament in Toronto.

The 16th-seeded Karlovic outplayed the defending Cincinnati champion Federer en route to a 7-6 (8-6), 4-6, 7-6 (7-5) shocker on the hardcourts

Federer would lose his No. 1 ranking this week if Nadal can capture this championship. The Swiss has now dropped three of his last four matches, including a tournament-opening one against Frenchman Gilles Simon last week in Toronto.

The reigning four-time U.S. Open champion Federer has held the No. 1 ranking since February 2004.

Karlovic converted on his third match point in the third-set tiebreak when Federer misfired long on a backhand return after 2 hours, 10 minutes of tennis. The massive-serving Croat launched 22 aces on his way to victory, his first against Federer in seven tries.

The 6-foot-10 Karlovic prevailed despite being unable to break Federer's serve on Day 4. Federer could manage only one break against the towering Croat.

The 12-time Grand Slam champion Federer beat American James Blake in last year's finale here and was also the Cincy champion in 2005.

Meanwhile, Australian Open champion Novak Djokovic was an easy third-round winner on Day 4.

The third-seeded Djokovic drubbed Italian Andreas Seppi 6-1, 6-2. Up next for the Serbian star will be his former junior training partner, 19-year- old Latvian Ernests Gulbis, who grounded a seventh-seeded Blake 6-4, 1-6, 6-3.

Eighth-seeded Scotsman Andy Murray cruised into the quarters by handling Russian Dmitry Tursunov 6-3, 6-3 at this U.S. Open Series event.

German Philipp Kohlschreiber reached the round of eight by outlasting Swede Robin Soderling 7-6 (7-4), 5-7, 7-6 (10-8) in 2 hours, 23 minutes. The players combined for 45 aces, including 23 for the loser.

Kohlschreiber will meet Karlovic here on Friday.

Former world No. 1 Carlos Moya won a pair of matches on Thursday. The second round concluded when the Spaniard upended fourth-seeded Russian Nikolay Davydenko 7-6 (10-8), 4-6, 6-2 and the former French Open champion then went on to defeat Russian Igor Andreev in a third-rounder, 6-4, 7-6 (7-2). The Moya-Davydenko match was suspended because of rain here on Wednesday night with the Spaniard up a set and leading 1-0 in the second.

Moya, who captured this tournament back in 2002, will battle Murray in the quarters.

Finally, Nicolas Lapentti of Ecuador earned a date with Nadal in the quarters by dumping 10th-seeded Spaniard Fernando Verdasco in straight sets, 6-3, 7-5.

The 2008 titlist here will pocket $420,000.