The Gills nine game unbeaten run came to a surprising end on a wet Friday night in East London.
Andy Hessenthaler's side started well and deservedly took the lead through Danny Kedwell before League Two strugglers Dagenham & Redbridge hit back to claim the points.
Once the Daggers had pulled one back the Gills failed to get back in their stride and, in the end, paid the consequences.
With six minutes on the clock the Gills took the lead from their first meaningful attack following a horrendous blunder by Chris Lewington.
The Daggers keeper had one or two attempts to collect a Chris Whelpdale ball and failed miserably allowing Danny Kedwell to smack home his 10th goal of the season.
Buoyed by the goal the Gills went on the offensive and Kedwell saw a diving header turned aside by the keeper, Garry Richards looping header was tipped over by a back-pedalling Lewington while a Danny Jackman corner flew to safety off the near post.
Add to that off target attempts from Jo Kuffour and Curtis Weston and you can understand why the estimated 1,500 Gills fans were in full voice.
In the 17th minute Brian Woodall went down rather easily in the area but all he got for his troubles was a yellow card from referee Pat Miller.
Five minutes later the home side levelled matters out of the blue. A Cristian Montano ball found Billy Bingham in space just outside the area and the young midfielder sent a sweet half-volley across Ross Flitney and into the corner of the net.
A great flick from Weston allowed the overlapping Jackman to cross from the left in the 27th minute, but Whelpdale who had taken a long throw seconds before on the other side stole in at the back but couldn't direct his header on target.
With 35 minutes gone the Gills were awarded a corner when Lewington blocked Kuffour's shot at close range. From Jackman's corner Kedwell powered a header goalwards only to see Oluwafemi Ilesanmi head off the line.
Jack Payne curled a shot straight at Lewington before almost immediately at the other end Jon Nurse ran onto a through ball but Flitney was out quickly to narrow the angle and parry the ball out for a corner.
Richards went in to the book in the 42nd minute in strange circumstances. Montano was flagged offside rather lately and Mr Miller whistled just as Richards came in with a heavy challenge.
The Gills had got off to a great start and took the lead during a purple patch and could of had another one or two. It wasn't to be and the home side equalised with a decent strike and the closing stages of the half were a little more even.
John Still's side started the second-half on the front foot as the conditions deteriorated. Early on Whelpdale was in the right place to knock a header, from Dominic Green's corner, off the line then Richard Rose forced Flitney to tip over with a follow up header.
Another ex-Gill Kevin Maher then failed to test the Gills keeper with a shot from distance.
In response Weston got onto a deep Lawrence cross but couldn't steer the ball on target.
Montano, who had played against the Gills for Swindon Town at the County Ground earlier in the season, then squeezed between two defenders but his low shot was tidied up by Flitney.
In the 57th minute Flitney had to be on his toes when Green fired a free-kick from distance straight at him.
A long goal-kick from the Gills custodian saw the Gills go close five minutes later, Weston got in behind the home defence but Lewingtom managed to block. From Jackman's resultant corner Whelpdale curled a shot inches over.
In the 64th minute Dagenham took the lead when a neat build up down the right was suddenly switched by Montano and Bingham found Brian Woodall in space, he curled home the ball beyond Flitney and just inside the post.
Lawrence then joined Richards in the book for a tackle on Nurse out wide on the left.
In the 72nd minute Montano picked up a silly yellow for kicking the ball away before skipper Andy Frampton, who returned to the side as the only change, joined him for a foul on the Daggers striker.
A minute later Lewis Montrose went on as a first change replacing Joe Martin. The switch saw the Gills go to three at the back with Jackman going to the left with Montrose slotting into the middle.
Other substitutions in the closing stages saw Stefan Payne and Dennis Oli replace Weston and Kedwell but neither found it easy to get involved.
Although the result left the Gills in sixth place in the League Two table, they could drop out of the play-off places depending on Saturday's scores.
It was not the result the Gills would have wanted to end 2011 on but must look to return to winning ways when Aldershot Town visit MEMS Priestfield Stadium on Monday afternoon.
* - Former Gillingham boss Peter Taylor was among the interested spectators in the The London Borough of Barking & Dagenham Stadium.
Attendance: 3,120 (1,302 Gills)
Daggers: Lewington, Doe, Rose, Nurse, Maher, Woodall, Bingham, Ilesanmi, D.Green, Montano, Spillane
Unused subs: Hogan, Elito, Geohaghon, DJ Green, Cunnington
Gills: Flitney, Lawrence, Frampton, Richards, Martin (Montrose 73), Jackman, J.Payne, Weston (S.Payne 84), Whelpdale, Kedwell (Oli 89), Kuffour
Unused subs: Oli, Rance, Gazzaniga
Referee: Pat Miller (Bedfordshire)
Assistants: Stephen Artis and Richard Kendall
Fourth Official: Rob Hyde