The depleted East Bengal, who are playing without their four regular players, conceded two early goals with Xu Weihua (6th) and Miroslav Kristic (19th) giving the home side a 2-0 lead at halftime in the Group F match.
It was difficult for the red-and-gold side to come back from there as Dudu Omagbemi only managed to halve the deficit with his left-footed volley from a Mohammad Rafique cross in the 82nd minute.
Having suffered a second successive away defeat, East Bengal, on the other hand, slipped to the bottom of the four-team table with one point from three matches.
East Bengal will next host the Singaporean outfit in their next outing on April 14.
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Playing without four regulars in Arnab Mondal, Saumik Dey, Lalrindika Ralte and Cavin Lobo, who are doing national duty, East Bengal were caught unawares as Croatia's Kristic almost handed the lead but his third minute attempt sailed over the bar.
East Bengal defence failed to learn from the mistake as Balestier Khalsa doubled the lead with Kristic toying the red and gold's backline.
The Croatian forward used the gap between Gurwinder Singh and Raju Gaikwad before outpacing the latter to slot the ball home from the far corner.
The I-League runners-up were earlier thrashed 4-1 by Johor Darul Ta'Zim to in their opening match this season while in the last match they held last year's semifinalists Kitchee FC of Hong Kong 1-1.