The unseeded Indian lost 4-6 6-2 3-6 to her Australian opponent in one hour and 32 minutes in her opening round of the USD 220,000 event.
The Indian came up well after conceding the lead but failed to keep up the momentum and was broken thrice in the final set.
Sania had lost the second round of the Auckland event to Italian Flavia Pennetta last week.
The Indian, however, remains in contention in the doubles competition pairing with Spaniard Virginia Ruano Pascual.
They have been seeded second and open their campaign against Edina Gallovits of Romania and Marie-Eve Pelletier of Canada.
The Australian Open starts next week in Melbourne.