Many animals live in complex social groups. To survive, it is essential to know who to avoid and who to interact. Although naïve mice are naturally attracted to any adult conspecifics, a single defeat experience could elicit social avoidance towards the aggressor for days. The neural mechanisms underlying the behavior switch from social approach to social avoidance remains incompletely understood. Here, we identify oxytocin neurons in the retrochiasmatic supraoptic nucleus (SOROXT) and oxytocin receptor (OXTR) expressing cells in the anterior subdivision of ventromedial hypothalamus, ventrolateral part (aVMHvlOXTR) as a key circuit motif for defeat-induced social avoidance learning. After defeat, aVMHvlOXTR cells drastically increase their responses to aggressor cues. This response change is functionally important as optogenetic activation of aVMHvlOXTR cells elicits time-locked social avoidance towards a benign social target whereas inactivating the cells suppresses defeat-induced social avoidance. Furthermore, OXTR in the aVMHvl is itself essential for the behavior change. Knocking out OXTR in the aVMHvl or antagonizing the receptor during defeat, but not during post-defeat social interaction, impairs defeat-induced social avoidance. aVMHvlOXTR receives its private supply of oxytocin from SOROXT cells. SOROXT is highly activated by the noxious somatosensory inputs associated with defeat. Oxytocin released from SOROXT depolarizes aVMHvlOXTR cells and facilitates their synaptic potentiation, and hence, increases aVMHvlOXTR cell responses to aggressor cues. Ablating SOROXT cells impairs defeat-induced social avoidance learning whereas activating the cells promotes social avoidance after a subthreshold defeat experience. Altogether, our study reveals an essential role of SOROXT-aVMHvlOXTR circuit in defeat-induced social learning and highlights the importance of hypothalamic oxytocin system in social ranking and its plasticity.