Higgins made three centuries and scored over 668 total points, but still went down 6-4 to Northern Ireland's Mark Allen at Alexandra Palace.
The wizard of Wishaw could hardly have started stronger, producing breaks of 104 and 132 to race into a two-frame lead before Allen showed his class to level things by the mid-session interval.
World No. 6 Allen then established a 5-3 advantage before two-time Masters champion Higgins almost made the eighth maximum break of his career in frame nine.
The Scot missed a tough final yellow to break down on 120 and Allen booked his place in the quarter-finals in the very next frame, although he scored 138 fewer total points than Higgins.
And after struggling for the past couple of years, the 39-year-old was delighted that he was able to display the green shoots of recovery in defeat.
"I can't be too disheartened with that performance," he explained. "I should be sitting here gutted, but I'm sitting here happy with the way I played.
"I really did enjoy that game and it felt as if I was coming back to some of my form
"Mark played very well though, so it must have been a good game to watch - instead of moaning about it I'm taking the positives.
"I played well and hopefully with a new year I can play like that for the latter half of the season and my results will pick up.
"I feel my form is steadily coming back - even when I've been losing matches I have still been gaining nuggets of confidence and I thought I played pretty well again.
"I've played worse than that and won hundreds of matches, so you've got to hold your hand up and say the better man won at the end of the day."
There have been few results to write home about for Higgins this season - a quarter-final appearance at the Six-Red World Championship being his best display.
His poor performances mean the four-time world champion is in danger of having to qualify for the 2015 World Championship.
After his successful battle with cancer, Ali Carter's seeding has been frozen at 13 meaning that only the world's top 15, as opposed to the usual 16, will receive direct entry to the main draw of the tournament.
Qualification would involve winning three matches to reach the Crucible Theatre but the world No.14 is refusing to entertain that possibility.
"Staying in the top 15 has got to be the aim, so you don't have to qualify for the World Championship," added Higgins.
"I'm feeling more confident that if I play like that for the second half of the season, then I don't think I'll have a problem staying in there.
"Some players are moaning about it but I'm not - Ali has been away from it for a while and deserves that chance for the latter half of the season.
"You obviously don't know how you're going to play in the coming weeks but I feel better in myself."
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