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Australia have been left with little wiggle room in a bid to reach the Paralympic semi-finals of the wheelchair rugby after suffering a shock first-up loss.

The Australian Steelers' bid to win a record third straight Paralympic gold medal has hit an early snag after they suffered a shock 54-53 loss to Denmark in wheelchair rugby.

The Steelers started as hot favourites in Wednesday's match in Tokyo against a Denmark outfit making their Paralympic debut.

But Denmark took it up to the Steelers from the outset, with Sebastian Frederiksen finishing with 29 tries in a match-winning display.

Australia were on course for victory after edging out to a three-point lead early in the second half, but Denmark pulled off a series of clutch turnovers to turn the tide.

Scores were level with 14.9 seconds remaining when Denmark called a tactical time-out.

In the next play, Denmark crossed over with 2.7 seconds remaining to retake the lead by one point.

Australia had one last opportunity to tie the scores and send the match into overtime, but a Hail Mary pass failed to come off, with Denmark players celebrating wildly once the final buzzer sounded.

The loss means Australia will need to beat France and Japan to finish in the top two of their group and progress to the semi-finals.

Frederiksen was toppled over three times during the opening quarter as Australia desperately tried to stop him, but his eight tries ensured scores were level at 14-14 at the first break.

Scores were locked at 22-22 late in the first half before Australia secured a crucial turnover and a try in the dying moments to Ryley Batt.

Australia were left to rue a series of turnovers in the third quarter that allowed Denmark to turn a three-point deficit into a one-point lead at the final change.

The two teams traded tries during the final quarter, but Denmark were able to manipulate the clock in a manner that ensured they would have the last meaningful play of the match.

They made no mistake with the opportunity, crossing the line with just seconds remaining to ensure victory.

Ryley Batt scored 24 tries for Australia and Chris Bond chipped in with 17, but Denmark's determined defence came up trumps when it mattered most.