Posting on his official Twitter account Sunday, Modi wrote that he had called his opponent Nitish Kumar -- the current Chief Minister of Bihar -- and congratulated him on his victory.
Bihar is an important prize in Indian politics: if the state were a country, its 100 million people would constitute the world's 12th biggest nation, ahead of Iran, Egypt, and Germany.
Crucially for Modi's BJP, which is struggling to push through national-level economic reforms, Bihar contributes the fourth largest amount of members to India's upper house of parliament, where the BJP is poorly represented.
The winners of Sunday's vote-count
-- Kumar and Lalu Prasad Yadav -- are former rivals who between them have run the state for more than two decades. The two recently joined forces in a bid to fend off the threat of Modi personally campaigning for his party in Bihar.
A sitting Indian PM rarely gets too involved in state elections; Bihar's vote was unusual with Modi making numerous stops and dozens of speeches on the campaign trail.
The defeat represents a second loss of face for Modi's BJP this year, after it lost state elections in Delhi in February. Only last year the BJP swept to power in national elections, winning a rare majority of seats in the country's lower house of parliament.
Bihar's vote has been a particularly divisive election, with the BJP accusing its opponents of pandering to Muslim voters, and of not being reverent of cows, an animal Hindus consider holy.
The ugly back-and-forth contributed to a larger national debate about rising intolerance
. In recent weeks, as many as four Muslims have been killed across the country on suspicion of either consuming or transporting beef.
Separately, a writer arguing against idol worship was assassinated in August.
Kumar, who will now likely get a new term as Chief Minister, campaigned on a platform of development. Bihar is one of India's poorest states; Kumar has overseen an upturn in growth rates, public safety, and the construction of roads.
In his election speeches, Kumar sought to appeal to voters as a homegrown leader, while portraying Modi as a globetrotting outsider.
Cost for Modi?
Bihar's elections have implications across the country, and even beyond, given Modi's deep and personal involvement in the campaign.
Indian TV channels presented somber prospects for the country's ruling BJP, with commentators suggesting Modi -- as the face of a losing campaign -- would have to bear the brunt of failure.
But the global political risk consultancy Eurasia Group, which predicted the BJP's loss in a note Friday, wrote that it expected Modi to emerge relatively unscathed.
Modi "will remain India's single most popular politician," said Eurasia's Asia analyst Sasha Riser-Kositsky, adding that "no BJP politician comes close to Modi's stature."
Eurasia does, however, expect progress on national economic reforms to be slow, with an uncooperative and perhaps emboldened opposition in parliament.
On Thursday, Modi will seek to deflect from his loss as he heads to London, where he will meet British Prime Minister David Cameron and the Queen, and is expected to give a sell-out speech at London's Wembley stadium.