I agree with Hogleg, it looks like damping off. Not too surprising if you had the seedling growing in heavy soil with poor drainage as you said. You can try cutting it off above the damaged spot and rooting it like a cutting. I have had occasional success with that. Otherwise I think it is likely a goner.
I've repotted it up to the cotyledons in my usual mix of 1/3 perlite, 1/3 potting mix, 1/3 coco coir, so I'll see how it goes -- as an experiment more than anything I suppose.
Yes, damping off.
I have done that too many times myself.
I'll second that. Mostly I've just noticed it at the root level and lack of plant growth.