Federer and Thiem met in the final of Indian Wells and the Swiss star looked on course for a comfortable win when he won the first set 6-3.
But Thiem raised his level in the second set to win it 6-3 and take the match into a deciding set.
And in the 11th game of the final set, Thiem broke Federer then served out impressively to win his first Masters 1000 on a hard court.
Federer recovered from the defeat by winning at the Miami Open last month and is set to play on the clay this season for the first time since 2016.
The last match he played on the surface was against Thiem at the Rome Masters – and it left a lasting impression on the Austrian.
Speaking to the media ahead of this week’s Monte Carlo Masters, Thiem was asked about Federer and whether the 37-year-old was a contender on clay this season.
“Three years ago, he was a little bit injured with his back,” Thiem said.
“I could feel on the court that now he’s moving better. The first set was unreal.
“I thought, ‘I’m not in this world, I’m in a PlayStation game or something’.”
The favourite to win in Monte Carlo is Rafael Nadal but the Spaniard is coming back from a knee injury picked up at Indian Wells last month.
Nevertheless, Thiem thinks the 11-time French Open remains the man to beat on his best surface.
“I think that as long as Rafa is playing, he will always be the top favourite for any clay-court title, but I think there are more serious challenges to him than the in past years,” he said.
“Sascha [Zverev is] always [a threat] and Novak is back on the top of his game and, I hope, me.
“There are the really young guys like Felix, I think he likes clay a lot.
“He played amazing in Miami and [there are] also other very young guys like Stefanos and Shapovalov.
“There are many challenges for Rafa.”