Yusuf Yazici scored a hat-trick – the first time any visiting player has netted three goals against Milan since Rivaldo for Barcelona in October 2000 – as Lille ended the Rossoneri's 24-match unbeaten run.
The French outfit became the first side to beat Milan since Genoa in March, prior to the coronavirus-enforced shutdown.
Its success also marked the first time Milan has lost by a three-goal margin at home in European competition.
Yazici opened the scoring from the penalty spot following Alessio Romagnoli's foul, before two goals in the space of three second-half minutes from the Turkey international sealed the points for Lille.
The 23-year-old became the first player in the history of UEFA's European club competitions to net two away hat-tricks in the same season, having also grabbed a treble against Sparta Prague in October.
Pioli pinned the defeat on Milan's mistakes but insisted he would not go overboard with criticism after suffering a first defeat of the campaign.
"We were up against a strong team and we made life difficult for ourselves," Pioli told Sky Sport Italia.
"We hadn't started badly, but I thought we'd be more dangerous in attack and we weren't able to create enough chances.
"With such a strong counter-attacking side, once we went behind, inevitably it opened up spaces and that played into their hands.
"We evaluate the positives and negatives, as always. For the first time in a long while, we have more negatives than positives to look at.
"We weren't ourselves and made mistakes in the wrong game, because Lille are a team who will take advantage of those errors.
"I am very happy here, there is a united atmosphere, a club that supports us and we have everything in place to do our work as well as possible."
Zlatan Ibrahimovic's eight goals in all competitions have inspired Serie A leaders Milan this term, though he was taken off after 62 minutes despite the Rossoneri needing a goal.
The 39-year-old had two of Milan's four shots on target, though neither of his attempts truly tested Lille goalkeeper Mike Maignan.
Pioli left Rafael Leao and Ante Rebic out of his starting side, with both coming on – the latter replacing Ibrahimovic – though Milan's coach believes he made the right call with the initial XI.
"I thought this was the best starting XI for the circumstances, it was balanced and competitive," Pioli added.
"Aside from the penalty, I felt we actually did well in the first half, but our movements and finishing in the final third weren't at the usual level.
"Obviously, as time went on and we conceded two goals in quick succession with our opponents making the most of those spaces opening up, we were punished constantly."