Real Madrid took a decisive step towards the La Liga title while Barcelona suffered a defeat which could be fatal to their title hopes.
Barca suffered their fourth defeat of the season at the hands of Real Valladolid, who started the day in the relegation zone.
Fausto Rossi, after two years without scoring, scored the game's only goal in the 16th minute beating Victor Valdes, who could do nothing to avoid it. Tata Martino's squad showed little fight and meekly caved in thereafter.
The defeat was arguably Barca's worst performance of the campaign, and comes at the worst possible time, just four days before the club hosts Manchester City in the Champions League.
Manchester United target Alex Song did not travel with the team for technical reasons and could be closer to the Premier League as a result.
Following Barcelona's shock, Atletico Madrid knew a victory would take them top of the table and they duly beat Celta Vigo 2-0 to overtake Tata Martino's side.
Atletico were missing their leading scorer, Diego Costa, playmaker Arda Turan and centre-back Diego Godín, all through suspension. But after a drab first half, David Villa scored his 12th and 13th league goals of the season to clinch victory.
Celta's Rafinha Alcantara, a transfer target for several Premier League clubs, was left out.
Atletico host AC Milan on Tuesday in the second leg of the Champions League last 16 after winning 1-0 in the San Siro.
After rivals Barcelona and Atletico Madrid both played on Saturday, focus turned back to Real Madrid who are showing no signs of losing intensity.
Los Blancos went into their match with Levante at the Santiago Bernabeu knowing that the title was firmly in their own hands, and maintained their control with a comfortable 3-0 win.
Cristiano Ronaldo needed just 11 minutes to open the scoring with a header from Angel Di Maria's corner kick – it was his 38th goal of the season. Real dominated the match and Marcelo doubled their lead four minutes into the second half.
Levante were reduced to 10 men after David Navarro's dismissal for a late challenge on Ronaldo and Nikos Karampelas turned the ball into his own net to seal a 3-0 win for the hosts.
Arsenal target Alvaro Morata, who scored his first-ever La Liga goal against Levante last season, was again left - fuelling further speculation about a move to the Emirates.
Gareth Bale did not scored even though he had several attempts on goal. However he has already managed 10 assists in leagues games thus far, the same figure that he got in his best season with Tottenham Hotspur (2011/12).
The result puts Ancelotti's side three points ahead of Atletico Madrid and four ahead of Barcelona.
Elsewhere Sevilla achieved a 3-1 victory against Almeria in a match dominated by Unai Emery's side, who consigned Francisco Rodriguez's squad to the relegation zone along with Malaga and Valladolid.
The presence of Ivan Rakitic gave Sevilla control and he provided a notable assist for Kevin Gameiro's goal. The result leaves Sevilla on course for a European place.
Valladolid 1-0 Barcelona
Celta 0-2 Atletico
Real Madrid 3-0 Levante
Espanyol 3-1 Elche
Almeria 1-3 Sevilla
Valencia 1-1 Athletic
Betis 2-0 Getafe
Granada 2-0 Villarreal
Osasuna - Malaga (Monday-20:00)
Real Sociedad - Rayo (Monday-22:00)