Alex Baena's 42nd-minute strike settled an attritional battle in Spain's favour in Guadalajara that condemned the Uruguayans to an early exit.
The European champions will instead face Austria or Algeria next in Los Angeles on Thursday.
Uruguay's defeat allowed debutants Cape Verde to secure second place and a meeting with Lionel Messi and the defending champions thanks to a 0-0 draw against Saudi Arabia.
Two-time winners Uruguay become the highest ranked side to crash out in the group stages as the defeat rounded off a miserable tournament for Marcelo Bielsa and his squad.
After draws against Cape Verde and Saudi Arabia, reports of a revolt in the Uruguay camp emerged with leading players, including Real Madrid's Federico Valverde, clashing with Bielsa over his tactics.
Bielsa controversially substituted Valverde on the hour mark and said the decision to replace Muslera at half-time had been taken by the player himself.
"Journalists and fans of Uruguayan football legitimately want to pin the blame on me. I'm the person responsible and I have to accept it," said Bielsa.
Spain's King Felipe was among those in attendance but the only clash between two former winners of the World Cup in the group stages was a huge disappointment.
Lamine Yamal's to the starting line-up had sparked the Spanish attack into life in a 4-0 thrashing of Saudi Arabia after La Roja began in underwhelming fashion with a goalless draw against Cape Verde.
But another laboured attacking performance leaves Luis de la Fuente with plenty to ponder before the knockout stages begin on Sunday.
Spain injury concerns
To add to Spain's concerns a shoulder injury suffered by Yeremy Pino may have ended his tournament, while Nico Williams also ended a bruising encounter with a muscle problem.
"In football, you can't always play with the brilliance you wish for, or that we are capable of showing at other times," said De la Fuente.
"We maintained an incredibly high level of concentration, responsibility, and composure, and we avoided rising to the many provocations that could have led to serious trouble."
A hero of Uruguay's run to the semi-finals in 2010, Muslera was at fault for both Cape Verde's goals in a 2-2 draw.
And in Guadalajara, Spain had barely threatened the Uruguay goal before the 40-year-old allowed Baena's shot to dribble over the line from Marcos Llorente's cross on 42 minutes.
Muslera was replaced at half-time by Sergio Rochet and the Uruguay boss made an even bolder call when Valverde was taken off on the hour mark.
Yamal was replaced 15 minutes from time as his minutes continue to be managed after a hamstring injury ended his club season prematurely.
His replacement Ferran Torres should have doubled the lead five minutes from time but hit the bar with just the goalkeeper to beat.
Uruguay's miserable tournament was summed up when Agustin Canobbio was shown a straight red card in stoppage time for a wild lunge on Pau Cubarsi.
Hyped as one of the pre-tournament favourites, Spain are now 34 competitive games unbeaten and are yet to concede a goal at the World Cup.
But in stark contrast to some of the scintillating attacking play on show from the likes of France, Argentina and the Netherlands, La Roja are yet to convince in their quest for a second World Cup triumph.
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