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The 23-year-old Yorkshireman, who won silver at the 2014 Commonwealth Games, lost every round on all the judges' cards in a below-par performance.
Reigning Asian Games champion Butdee, 31, floored Ashfaq with a jolting left hand midway through the second round.
"I know I am well capable of beating guys like that," said Ashfaq.
"But I'm a strong believer that what is meant to be will be and it wasn't my night.
"I just wasn't myself. But on the night I was beaten by the better kid.
"I'm in the best shape of my life. I guess he's a lot older than me, he's been to three Olympics and that maybe helped him."
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Bantamweight Qais Ashfaq became the fifth British boxer to exit the Rio 2016 Olympic Games after being beaten by Thailand's Chatchai Butdee.