World number nine Raonic is in the hunt for a place in the season-ending event in London next month, but his chances of qualifying were hit by a surprise 6-3 4-6 6-3 defeat at the hands of Lithuanian qualifier Berankis in Moscow on Thursday.
Raonic was the top seed for the ATP 250 indoor hard-court tournament, but the big-serving Canadian failed to progress beyond the second round as world number 116 Berankis claimed a major scalp.
Berankis was not phased as the favourite sent down 15 aces, breaking the Wimbledon semi-finalist's serve four times to triumph in an hour and 53 minutes.
Raonic was stunned as Berankis, 24, broke to take a 4-3 lead and followed that up with another to win the first set, but the Montenegro-born Raonic responded.
Berankis fended off two break points in the opening game of the second set, but a persistent Raonic secured the break and, despite losing the next game on his serve, he broke again in order to go 3-2 up and duly served out the set.
The plucky Berankis was not finished yet, though, and he claimed the solitary break in the decider and held his nerve to claim his first victory over a player ranked in the top 10.
He said: "I'm really happy about the win. To beat a top-10 player and the number one seed in the tournament is a great feeling and it gives me a lot of confidence,
"I’m looking forward to the quarter-finals."
Fourth seed Fabio Fognini's week in Moscow was also cut short, as he beaten 6-4 6-2 by world number 74 Mikhail Kukushkin.
Kukushkin proved he is no pushover by taking Novak Djokovic to three sets in the Shanghai Masters last week and proved to be too strong for out-of-sorts Italian Fognini, ranked 19th in the world.
Fognini double-faulted on eight occasions and his Kazakhstani opponent took advantage of his struggles on serve by breaking five times to reach the last eight.
Third seed Ernests Gulbis avoided an upset by beating Daniel Gimeno-Traver 6-3 7-6 (7-3), while Tommy Robredo, seeded six, marched on with a 6-3 6-4 victory over Filip Krajinovic and Mikhail Youzhny saw off Juan Monaco 6-3 7-6 (8-6).