The pressure was on 'The Rocket' going into his second run. He was the last to ride as the leader at the halfway point and Neureuther did as much as he could, posting a quick time of 1:42.83.
And while Ryding came close to Britain's first Alpine Skiing World Cup win, he ultimately buckled just before the third interval when his lead had just been clocked at 0.51s, misjudging a turn before slowly sliding down the slope disconsolate.
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Heartbreak for Dave Ryding on second run
However, he can take heart from his performance in the first run as he continues his preparations for the Winter Olympics in Pyeongchang.
For 33-year-old Neureuther, it was a first victory since the birth of his daughter Matilda, and with the winner getting a reindeer as a prize, he said that he would be naming the animal after his newborn:
I never thought that I could win here. I'm 33 years old, it's my first race as a father so winning here is unreal. It means a lot to me. You had to push really hard, you had to take your chances and still ski smart and it worked out perfectly for me.
Felix Neureuther triumphs in Levi
Henrik Kristoffersen of Norway, nicknamed 'The Prince of the Vikings', finished second behind Neureuther with a total time of 1:43.20 with Sweden's Mattias Hargin third.
Reigning world champion Marcel Hirscher, riding just three months after breaking his ankle, finished outside the top 10 but can be pleased given his lack of training.
Earlier, Ryding led the opening run with an impressive time of 50.29 seconds.
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Despite one nervy moment when he had a little breakaway of his turning ski, he recovered well using his ability to generate pace.
Ryding looked immediately at home on the slope at Levi, the venue of his first ever World Cup points five years ago. Neureuther (50.43s) and Kristoffersen (50.47s) trailed him. Hirscher was fourth.
Ryding is one of GB's strongest medal prospects for Pyeongchang next February.
World Cup Levi Men's Slalom results
1. Felix Neureuther (Germany) 50.43 52.40 1:42.83
2. Henrik Kristoffersen (Norway) 50.47 52.73 1:43.20
3. Mattias Hargin (Sweden) 51.02 52.26 1:43.28
4. Luca Aerni (Switzerland) 51.06 52.31 1:43.37
4. Daniel Yule (Switzerland) 51.01 52.36 1:43.37
6. Loic Meillard (Switzerland) 51.20 52.34 1:43.54
7. Sebastian Foss Solevaag (Norway) 50.96 52.62 1:43.58
8. Alexis Pinturault (France) 51.07 52.64 1:43.71
9. Manfred Moelgg (Italy) 51.13 52.60 1:43.73
10. Reto Schmidiger (Switzerland) 50.90 52.86 1:43.76
11. Jean-Baptiste Grange (France) 51.58 52.20 1:43.78
12. Victor Muffat-Jeandet (France) 51.39 52.40 1:43.79
13. Marco Schwarz (Austria) 50.91 53.01 1:43.92
14. Michael Matt (Austria) 50.97 52.99 1:43.96
15. Fritz Dopfer (Germany) 51.37 52.76 1:44.13
15. Leif Kristian Haugen (Norway) 50.99 53.14 1:44.13
17. Marcel Hirscher (Austria) 50.75 53.40 1:44.15
18. Stefano Gross (Italy) 51.53 52.64 1:44.17
19. Marc Rochat (Switzerland) 51.36 52.91 1:44.27
20. Christian Hirschbuehl (Austria) 51.85 52.48 1:44.33
21. Julien Lizeroux (France) 51.12 53.30 1:44.42
21. Erik Read (Canada) 51.85 52.57 1:44.42
23. David Chodounsky (US) 51.13 53.31 1:44.44
24. Ramon Zenhaeusern (Switzerland) 51.58 52.94 1:44.52
. Dave Ryding (Britain) 50.29 DNF DNF
. Andre Myhrer (Sweden) 50.83 DNF DNF
. Jonathan Nordbotten (Norway) 51.15 DNF DNF
. Manuel Feller (Austria) 51.18 DNF DNF
. Marc Digruber (Austria) 51.31 DNF DNF
. Linus Strasser (Germany) 51.41 DNF DNF
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