The loss of one of Labour's safest seats, in the biggest electoral test in almost a year, puts further pressure on Starmer to prove that he should keep his job following weeks of political turmoil and calls for him to resign.
The left-wing Green Party's Hannah Spencer won the contest on Friday for the parliamentary seat of Gorton and Denton, with Nigel Farage's anti-immigration Reform UK party coming second, and Labour pushed into third place.
The result was "clearly disappointing", Labour party chair Anna Turley said.
Starmer had staked his personal authority on Labour winning the seat by blocking one of his rivals, the popular Manchester mayor Andy Burnham, from standing, and by visiting the constituency this week when British leaders usually avoid campaigning in local areas if they risk losing.
The defeat comes after Starmer faced the most dangerous moment of his premiership in February when some of his MPs said he should resign over his decision to appoint Labour veteran Peter Mandelson as ambassador to Washington, despite his links to the late sex offender Jeffrey Epstein.
Labour won just more than half the vote in Gorton and Denton at the last general election in 2024.
But Starmer's unpopularity, sluggish economic growth and a series of scandals and policy U-turns contributed to a deep fall in the party's support.
The Green Party won 41 per cent of the vote in an election triggered when a member of parliament resigned for health reasons.
Nigel Farage's Reform Party came second with 29 per cent of the votes and Labour finished third with 25 per cent.
Starmer was unlikely to face an immediate threat to his position if he lost, Labour MPs said before the vote.
But he could be challenged after May elections, they said, when Labour is expected to fare badly in local and regional polls.
It was the first time the Green Party, which supports leaving NATO and legalising recreational drugs, had won a one-off election for a seat in parliament or one in the north of England.
That takes the party's seats in the House of Commons to five out of 650.
