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The Swiss won the opening set and went a break up in the second before Nadal began receiving treatment for a back spasm.
The world number one continued bravely despite going two sets down and then showed his typical determination to reduce the deficit, before Wawrinka rallied to claim a 6-3 6-2 3-6 6-3 win in Melbourne.
Wawrinka capitalised on a couple of Nadal errors to claim a break early in the first set and then held serve convincingly until the ninth game, where he saved three break points to claim first blood in the set column.
The eighth seed broke to love in the opening game of the second set and Nadal's back pain was beginning to become evident as Wawrinka won four out of the next five games to move into a 5-1 lead.
Nadal saved three set points to force his opponent to serve out for the set and when Wawrinka did, the Spaniard was expected to retire as he continued to struggle with his movement around the court.
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However, another lengthy visit from the physio persuaded the 13-time Grand Slam champion to soldier on and he did to great effect by winning the first three games of the third set.
Games were exchanged in a period of the contest which suggested that a miraculous comeback could be on the cards, when Wawrinka's serve lost some bite and Nadal battled fiercely from the baseline.
The 2009 champion halved match the arrears and was working his way back into the final before the Swiss proved his big-match calibre with a crucial break of serve to move to within two games of the trophy.
Nadal replied immediately only for Wawrinka to fire down a couple of winners on the left-hander's serve to claim a 6-3 6-2 3-6 6-3 victory at the Rod Laver Arena and move up to number three in the world.