The Eagles had led 2-0 at half-time courtesy of goals from debutants Tom Ince and Joe Ledley before West Brom's own new man Thievy Bifouma pulled a goal back at the start of the second half.
The visitors then pushed on for an equaliser and saw James Morrison and Scott Sinclair bring the best out of Palace goalkeeper Julian Speroni before referee Chris Foy made the game's biggest decision.
Marouane Chamakh was played through on goal and the on-rushing Ben Foster slid in to tackle the Morocco international, with Foy deeming the England goalkeeper had committed a foul before pointing to the spot.
He decided against showing a card to Foster, who was then sent the wrong way by Chamakh, but Mel was left fuming at the awarding of the spot-kick as his side went on to lose and fall into the Barclays Premier League bottom three.
"The penalty decision was laughable," he said.
"If it was a penalty then it would have been a red card. I think the penalty decision really did prevent us from getting anything from the game.
"In the previous piece of play Speroni made a really great save and that would have made it 2-2 so the penalty decision really did kill us off.
"If it was a penalty then we wouldn't be able to say anything about it but it really was an error from the referee."
Mel was also unhappy about his side's defending in the first half and felt, if they had started well, they could have left south London with only their second away win of the campaign.
"I'm extremely angry," he said.
"In the first half we really did gift it to Crystal Palace, the first goal was from a second ball and the second goal came from a corner.
"I really would like to know [why we started so slowly] but if we had played like we did in the second half we would have three more points right now."
Palace boss Tony Pulis, who saw his side move to 13th in the table with the win, had a different view of the contentious penalty decision.
"Looking back it looks as though the referee has got it right," said the Welshman.
"Ben has caught him with his foot I think, Marouane touches it away and then Ben comes through and I think it is his momentum that catches Chamakh."
Pulis handed debuts to Ledley, Ince and Scott Dann and was pleased with their contributions - challenging them to add greater depth to his squad.
"I think the biggest thing about Tom if you look at what he did today was actually his work and the way he did all the unglamorous stuff that all good players do," Pulis added.
"We are pleased for him, Dann and Ledley, the big thing for the team is that the players who have been at the football club have done exceptionally well.
"Tom took his goal with aplomb. We have been moaning a little bit that we haven't scored enough from set-plays and Joe's header was first-class.
"The players we brought in they have to work as hard and have that little bit more quality but I'm pleased for the group, it is the group who have taken us where we are at the moment and it will be the group that decides whether we are good enough to stay in the Premier League or not."