Pugh marked his first start of the season with the game's only goal to lift Bournemouth up to eighth place.
Leicester overwhelmed Pep Guardiola's Manchester City 4-2 on Saturday in a thrilling return to the form that carried them to last season's fairytale title triumph.
But Pugh marked his first start of the season with the game's only goal to lift Bournemouth up to eighth place and keep Claudio Ranieri's Leicester four points above the drop zone in 14th.
It was not how Ranieri would have wanted to mark his 200th Premier League game as a manager.
The Italian has not seen his side win back-to-back league games since April and they have not won away from the King Power Stadium since the start of the campaign.
From contemplating the prospect of a Champions League last 16 encounter against Sevilla, with whom they were paired in Monday's draw, Leicester find themselves facing up to a relegation scrap.
Ranieri made only one change to the team that had outclassed City at the weekend, with Luis Hernandez coming in for the suspended Danny Simpson at right-back.
But it was Bournemouth, for whom Jack Wilshere returned to the starting XI, who made the early running, with Charlie Daniels flashing a cross across the face of goal.
Leicester talisman Jamie Vardy returned to his brilliant best with a hat-trick against City and he had a sight of goal after rounding Artur Boruc, only for a sliding Steve Cook to intervene.
It was a rare sight of goal for the visitors and after Wilshere had warmed the palms of Leicester goalkeeper Ron-Robert Zieler with a crisp effort, the home side took the lead.
Adam Smith cut the ball back from the right for Benik Afobe, whose shot was parried by Zieler, but Pugh was on hand to smash the rebound home.
Ranieri sent for the cavalry in the second half, throwing on forwards Ahmed Musa, Shinji Okazaki and Leonardo Ulloa, but still a goal eluded his side.
Vardy hooked an effort straight at Boruc from Hernandez's long throw, while Robert Huth headed wide from Riyad Mahrez's corner and Okazaki saw an effort brilliantly blocked by the valiant Cook.
There was one last sight of goal for the champions when Ulloa took aim from point-blank range, but Boruc thwarted him to give Bournemouth a first win over Leicester since March 1989.