The Magpies, who had a "feisty" week after the 3-0 home defeat by Leicester City, scored first through Papiss Cisse but James McArthur (2), Yannick Bolasie (2) and Wilfried Zaha fired former Newcastle boss Alan Pardew's Palace up to sixth.
Newcastle crashed to second from bottom, five points above basement side Aston Villa, after north east rivals Sunderland won 2-0 at Stoke City to climb out of the bottom three.
McClaren had earlier played down reports of midweek training-ground bust-up with senior players, including captain Fabricio Coloccini, but his passionate "home truths" seemed unable to inspire his players at Selhurst Park.
"We made individual errors, but the killer goal was the fourth," the much-travelled former England manager, who joined Newcastle last summer, told Sky Sports.
"It is disappointing. We wanted a reaction and I think we got that. The players were focussed and ready but we made some errors and Crystal Palace capitalised.
"It is about hard work, working for each other, attitude, running backwards as quickly as you run forwards. After the third goal we didn't do that.
"We have got 25 games to go and we are in a relegation fight, no doubt about that. But we certainly have to work hard on the training field again and look for a reaction again."
Newcastle began on the front foot and took the lead when Senegal striker Cisse headed home Daryl Janmaat's cross in the 10th minute.
But Scotland's McArthur equalised and three minutes later Palace took the lead when Congolese forward Bolasie buried a low, left-footed shot from a Connor Wickham cross before Zaha hit a third shortly before halftime.
Bolasie made it 4-1 in the 47th minute before McArthur completed the rout in injury time, shooting through the legs of Newcastle goalkeeper Rob Elliot from a difficult angle.
"We caused problems everywhere. We were irresistible," Pardew, who left Newcastle to join Crystal Palace last January, told Sky.
"We are sixth because we are a good team, it was not about the opposition today. I have a lot of friends and family at Newcastle but I don't want to say a lot about them because I get criticised whatever I say."
(editing by Justin Palmer)
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