In what had effectively become a straight knockout match, Frenchman Tsonga claimed a memorable 7-6 4-6 6-3 victory in the final Group B tie at the season-ender to join Roger Federer in Saturday's semi-finals.
Tsonga's power had Nadal repeatedly on the back foot in the first set although he could not make the breakthrough until the tiebreak when he produced some staggering tennis to move 6-2 ahead and clinched the opener with a booming ace.
Nadal's staying power was evident in the second set as he refused to buckle in the face of Tsonga's onslaught and he broke the Tsonga serve for the first time in the 10th game to take the match into a deciding set.
The majority of the 17,500-capacity crowd would have tipped Nadal at that stage but world number six Tsonga broke the Mallorcan's serve at 1-1 and then repeated the trick to march 5-2 ahead when a despondent Nadal netted a tame forehand.
Tsonga wobbled when serving for the match, sending down two double faults to give Nadal one of the breaks back but he replied immediately to end the contest on the Spaniard's serve with a ripping forehand after two hours and 42 minutes.
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