With the exception of the two specific games I mentioned, every other Japenese game with level draining has been either a roguelike (like Chocobo Dungeon, but I'm more familiar with Shiren, which also has level draining) or a Wizardry spin-off or Wizardry-like, both being closely related to a certain early CRPG (that is, before Dragon Quest, which is generally considered the first JRPG, even if it's quite different from most JRPGs).

Never

As far as level drain in a JRPG, the only one I think of is LV Down ability in Final Fantasy VIII. However, it ability that useable by the player. I never seen it used by enemies. Bosses are immune to the effect.

Also there is ability with the opposite effect, LV Up. It's mainly a tool to gather resources. Higher level monsters yield more valuable loot and stronger spells to draw from.

The answer to all of those is - if you want your players to hate you, though there should be a place in any class and level-bound game for a voluntary reset or respec.
The original Diablo had a much worse case, the enemies that permanently drained your max health, and done that right, insofar anything like that can be done right - it happens early enough that you wont lose your entire playthrough, you can keep them at range and they have sickly warning coloration to cue you that something's terribly wrong about those innocuous zombies.

I think the only "level drain" making sense is in DnD/Pathfinder: you get hit by a powerful necromantic spell and you lose your life force, in this case dropping 5hp, 1 to all saving throws and 1 reduction to each level based ability per level drained.
Once you use "restoration", though, the effect is removed. It might be a costly spell to cast, but it makes the damage never truly permanent.

When you actually lose it forever, though? Nope. Awful, sadistic and cheap design. Just torture. Kill it with fire.

I think level drain should exist, but you should be able to pay gold in town to cure it, like other curses.

Level draining is one thing I seriously dislike about D&D. If an enemy creature or spell can drain a character's strength, then apply a penalty to their strength ability. If they have some detrimental mental effect, apply a penalty to intelligence or wisdom. Those affects should be applied through the ability scores. That is what they are for.

But, actually taking away a character's levels, hard-earned experience points and skills/feats they have learned? That is nonsense and makes no sense in the context of the game. It's a completely douchey mechanic that strikes directly at the heart of what makes an RPG fun - character development.

To answer your questions: the only time I can think of it possibly being justified in an RPG is some situation where the PC is transported back in time and they have to play as their past self. Perhaps during a flashback sequence they have to play out. Although, even then, I would consider it a bit douchey for a DM to make a player spend significant time playing an earlier version of their character.

I still don't see why having life force drained should impair one's mental ability and ability to use higher level spells. To me, that feels more like what a mental attack should do.

Like that one flashback scene in Final Fantasy 7? (This happens shortly after you leave Midgar, and the combat there is trivial because you have an uncontrolled companion who is (IIRC) level 50 during this sequence.)

Never really appropriate, extremely annoying, but somewhat effective as a scenario of intimidation, to make players more cautious and aware. There should be adequate countermeasures though, protection and cure. They should require a little sacrifice from players in order for the threat to work (gold, time, consumables etc.) but not so much that it becomes really frustrating and tedious.

EDIT: Oh, okay, I see what this is about. I agree that losing levels as a consequence for a vampire draining you is kind of arbitrary. It would make more sense to lose constitution and/or maximum hitpoints. Of course the bigger the annoyance, the bigger the threat, and losing spells is really effing annoying, even more so when it doesn't make any sense. ;)

You are right. Rouge-like is the term. It slipped my mind, hence using the term dungeon crawler (although I guess it could be applied to other types of games).

Yeah overall, as long as there are other means to strengthen your character in addition to levels that arnt also reduced by death or "level down," its not the worst thing in the world but annoying. If your game revolves only around character levels and a trap/monster/death etc reduces it, especially by quite a bit, its not good design since it encourages grinding.

FF8 is a unique example of the former despite not being a rougelike since the game honestly disincentivizes levelling up and grinding. Enemies (bosses included) gain levels similar to the party but the stat increases outpace the party by alot, meaning grinding actually makes the game harder. The majority of your stat gain comes from properly junctioning magic obtained from refining cards and items won through triple triad, meaning gaining access to powerful magic to junction while keeping your party level low is the best way to cheese the game.

This resulted in FF8 being a really unbalanced game and not good for beginners. Junctioning was confusing, it was anti-grindy which is unusual for an RPG, disincentivized magic use because using stocked magic reduced your stats, and encouraged playing triple triad as opposed to playing the game lol. FF8 had good ideas but needed refinement.

In BG2 or trilogy all familiars e.g. cat, are naturally resistant to level drain, petryfication and instant death. And Player Character can protect self from these effects with spells or scrolls (scrolls are spells, no they are not! Oh yes they are! no not at all! scrolls are readings and spells are memorised! Stop arguing with yourself! With me? No, with me... Of course with you. You are wierd! Orly?-you are exactly the same! Cob on! Pf! Hissy fit! ah! Don't you dare ! :P! Hide your tongue! No! :P! Hide your tongue or I will hide it for you! :I there! ...! ...! What? ...! ...! What? Ok your tongue, what is it? ... There's a monster with level drain ability behind your back! Aaaaa... Hahah :P now... What was I thinking... What's that!?...The Basilis...!... [Turned to stone]
The other self looking for a first one. Heeey! Are you there? Why am I level 1 again!? ...and what is this statue with tongue out? Seeelf? Are you there...?

Yeah, I guess. It's been a long time since I played FF7. Imo, such flashback sequences should always be very short and any combat is problematic, because a character dying during a flashback would create a 'temporal paradox' and make no sense.

In D&D, spellcasters can lose access to spells by having their Intelligence/Wisdom scores drained, since higher spell levels tend to have minimum ability requirements and abilities can grant spellcasters extra spell slots. Similarly with some feats in 3.5 ed D&D - some have minimum requirements for Strength or Dexterity. So, characters of any type can temporarily lose some powers if their ability scores are drained.

Imo, draining ability scores is the right way to do it. Taking away whole character levels is extreme and shouldn't ever be necessary.

Yes, this is an example of a temporary 'level drain' that's implemented really well.

A bit of a sidetrack, but might as well go on about a game I've started playing and really love; when you queue for a multiplayer dungeon that you've unlocked, you get downleveled to the cap for it. This allows experienced players to play with newcomers. They are also rewarded extra exp and currency for participating in a lower level dungeon. This extra reward can only be obtained a few times per day though, so as apparently to de-incentivise rabid exp farming and no-lifing.

It's a bit disorientating at first when you jump in 30 levels lower to a fight, with half of your skills available and 20% of your HP at max.

But you get it all back obviously at the end :)

This isn't limited to party dungeons either. When traversing the world, some areas with monsters and challenges pop up (FATEs, I forget what it stands for) where you can join in at the appropriate level when you press the flashing 'Level Sync' button. If you don't and you're 6+ levels above it, then you can't participate and the enemies won't attack you. This keeps the game challenging and worthwhile. You don't oneshot everything, and get nothing in return (you get bonus exp and currency for this too depending on your level).

I could go on about FFXIV for a while. Mostly positives (it's amazing), though at the moment I've been in the queue for half an hour already. I'm number 624 now. Started at 900. Bad time to login with the new expansion released just now.

Fair point. In those settings (at least, in the current iterations afaik) spells are not exclusively a mental effort, but they also require physical exhertion; level draining does not bar you from using high level spells, but it lowers their power.
I think in Baldur's Gate 1 and 2 you lost spaces in the spellbook as well, but this is no more the case - if your spells cannot get any lower than them minimum, they will be unaffecter by further draining.

Besides, when you are physically sick your reasoning is imparied as well.
Divine spells could be criticized fairly by this, since they are fundamentally miracles on request.

People who like the game do sometimes complain about the flashback scene being a low point in the game.

I don't think it's possible to game over during this sequence, and if it is, it would require the player to take deliberate action to do so. Even then, it's doubtful because your level 50 companion is going to kill the enemies before you have a chance to lose the battle.

On the other hand, the game does have a severe problem with excessive and excessively long cutscenes, which is part of the reason I don't like that game.
I've heard the queues tend to be smaller if you're a tank or healer rather than a DPS.

(If I were to play an MMO with DPS/tank/healer design, I would, without question, play the healer role.)