It was while leading 2–0 in the second set and 8–7 in the third against David Szantosi that Karlsson hurt his groin.
He received treatment, had his left thigh wrapped tightly, and managed to win the third set 13–11.
But after winning the match, Karlsson was in tears and afterwards he said that the World Cup was over.
"It's quite frustrating and sad. It's the same injury I got in China a month ago. I came here and thought it had healed, but match stress is different from training," he told Radiosporten.
"It sucks right now, it's really tough. This is the third time in two years I've had this injury and I'm not getting any younger," said the 34-year-old.
Kristian Karlsson played his first match in the World Cup after coming to London following the birth of his child.
Elias Ranefur will probably replace him. The debutant won one of his matches in Sweden's shock victory over China - the first in 26 years - in the seeding group stage on Sunday.
Truls Möregårdh started a little uncertainly against Adam Szudi, but when he was trailing 5–9 in the first set, he tightened his game and won 12–10, 11–5, 11–5.
Anton Källberg went on to defeat Hungarian number one Andras Csaba 3–1 in sets before Kristian Karlsson secured the victory, despite the injury.
Sweden will face Croatia in the round of 16 on Wednesday.
