Bayern had a bright start into the clash on Friday night and could have broken the deadlock with seven minutes gone, but Omar Richards pulled over the target from inside the box. Augsburg responded well to Bayern's early chance and staged a well-positioned bulwark as the game clock ticked.
The Fuggerstadter then shocked Bayern with the opener out of the blue in the 23rd minute when Andi Zeqiri's good build-up work and cross into the box allowed Pedersen to hammer home the lead into the top right corner.
Bayern lacked in accuracy in the final third and invited Augsburg to make it two as Zeqiri dispossessed Marcel Sabitzer before finding Hahn, who nodded home the 2-0 advantage in the 35th minute, Xinhua reports. The German record champions responded with furious attacks and eventually halved the deficit three minutes later after Robert Lewandowski made the most of Thomas Muller's back-heel lay-up.
After the restart, Bayern continued to press forward but lacked once again in accuracy as Lewandowski volleyed a loose ball from close range over the target with five minutes into the second half. Augsburg focused fully on its defence and kept all its men behind the ball whereas uninspired Bayern couldn't find a gap in the host's defence.
Alphonso Davies and Lewandowski came close but couldn't beat Augsburg goalkeeper Rafal Giekiwicz in the closing stages.
With the result, Bayern Munich suffered its second loss of the season. Meanwhile, Augsburg secured vital points to climb out of the bottom three onto the 15th spot.
"Congrats to Augsburg and coach Markus Weinzierl. They wrapped a deserved victory today. We didn't create enough chances to reap a point here and we are of course disappointed," Bayern head coach Julian Nagelsmann said.
"My team performed very well over 90 minutes. We scored twice in the first half to pave the way for the win. Bayern increased the pressure after the restart, but we stood firm and snatched a deserved win," Augsburg head coach Markus Weinzierl said.
The following fixtures are set for later on Saturday: Runners-up Borussia Dortmund host Stuttgart, Armenia Bielefeld see Wolfsburg, Bayer Leverkusen meet Bochum, Borussia Monchengladbach face Greuther Furth, Hoffenheim take on Leipzig and Union Berlin encounter local rivals Hertha Berlin.