A win would have clinched the U.S. men the top seed in their pool. Instead they'll have to wait for the final against winless Tunisia on Monday.
Sergey Tetyukhin added 21 points in the 27-19, 19-25, 26-24, 25-16, 15-8 victory. He spiked for match point for the No. 2 Russians.
Matt Anderson scored 18 points for the fifth-ranked U.S. men, who had won three straight matches in London after going undefeated in Beijing en route to the gold medal.
The U.S. team was coming off a four-set victory over top-ranked Brazil, a preliminary round rematch of the Olympic final in Beijing. But they couldn't counter Russia's powerful serves and blocks on Saturday.
The U.S. men weren't considered among the favourites to medal in London, but claimed the silver medal in the recent World League tournament before opening the Olympics with dominant straight-set victories over Serbia and Germany. Then came the upset with Brazil.
The U.S. landed in a difficult pool in London with Brazil, Russia, Serbia, Germany and Tunisia. The other six-team pool includes Italy, Poland, Argentina, Bulgaria, Australia and host Britain.
Teams are awarded points for each set won in London. The top four teams from each group in the preliminary round advance to the quarterfinals.
Russia lost in straight sets to Brazil earlier in the round, but beat Germany and Tunisia. They'll finish the preliminary round with a match against Serbia.
Russia found success on the block to go up 15-11 in the first set. Mikhaylov's spike made it 16-11 but the United States rallied back to go ahead 21-20 on David Lee's monster kill before Matt Anderson's ace won it.
The United States took an 8-5 lead in the next set and setter Donald Suxho pumped his fist several times. Alexander Volkov's block made it 12-all, but Russia couldn't pull ahead and Reid Priddy's block sealed the set.
Sergey Grankin's block gave Russia a 16-15 advantage in the third set but the United States took back the lead until Mikhaylov's spike put the Russians in front 25-24. Tetyukhin's ace won it.
Mikhaylov hit two straight aces to put Russia ahead 12-4 in the fourth set. Sean Rooney sparked a U.S. rally with three straight kills and the team pulled within 13-11, but it was as close as they'd come and Russia pulled away to force the deciding set.
Russia and the United States each have three gold medals in volleyball, which became an Olympic sport in 1964.
The Russians, who won the bronze medal in Beijing, have not won a gold since 1980.
The Americans return six players from the emotional gold medal-winning run in Beijing. Coach Hugh McCutcheon's father was stabbed to death at a popular Chinese tourist site a day before opening ceremony and missed the team's first three matches before leading them to the title.
McCutcheon has since gone over to the U.S. women's team, and the men are led by Alan Knipe.
Earlier in the day, Poland swept Great Britain to improve to 3-1 in Pool A and secure a spot in the quarterfinals. Zbigniew Bartman scored 20 points in the 25-16, 25-19, 25-18 victory.
Britain, which earned a place in the 12-team field as the host nation, is winless in the competition and was eliminated from the quarterfinal round.
Germany stayed alive in Pool B with a three-set win over Tunisia (25-15, 25-16, 26-16) to pull even at 2-2.
Tunisia is winless in the preliminary round and plays the United States in its finale on Monday.
Former cricketeer Steve Waugh was at Earls Court to cheer for Australia, which went up two sets on Italy before falling 3-2 (21-25, 18-25 25-21 25-14 15-13).
The No. 22 Volleyroos, as the team is known, had enthusiastic support from the fans as the underdogs against No. 6 Italy. The Australians hugged after the match and when they turned to acknowledge the crowd they were awarded with a standing ovation.