Manchester City crashed out of the Club World Cup as Al Hilal snatched a stunning 4-3 victory in extra-time of a pulsating last-16 match in Orlando.
Marcos Leonardo grabbed his second goal with 112 minutes on the clock as the Saudi Arabian side produced a major upset.
Bernardo Silva gave City a ninth-minute lead, but Pep Guardiola's side were punished for missing a series of chances as Leonardo and ex-Barcelona winger Malcom replied after the break.
Erling Haaland sent the game to extra-time, but City needed another equaliser from Phil Foden after ex-Chelsea defender Kalidou Koulibaly headed Al Hilal back ahead.
City, who were caught repeatedly on the break, were undone again as Leonardo had the final say, and the Saudi side will now play Fluminense for a place in the semi-finals after the Brazilian side shocked Inter Milan in the last 16.
City's defeat ended hopes of a potential all-English semi-final meeting against Chelsea, with the Blues taking on Brazilian side Palmeiras in the quarter-finals on Friday in Philadelphia (kick-off on Saturday at 2am UK time).
How City were stunned by Al Hilal
Guardiola, having taken the competition seriously, will rue a wasteful first-half display as his side started quickly with Ruben Dias heading straight at ex-Sevilla goalkeeper Yassine Bounou.
The opening goal soon came, although it proved highly controversial with complaints of handball against Rayan Ait-Nouri and Ilkay Gundogan, before Silva poked past Bounou.
City should have extended their lead before half-time, but Bounou denied Savinho, Gundogan, Josko Gvardiol and Jeremy Doku.
City were then punished for their profligacy as Al Hilal struck twice in the first seven minutes of the second half.
The equaliser came as former City full-back Joao Cancelo drove in a low cross, City goalkeeper Ederson pushed away, and Malcom's attempt on the rebound was blocked, but the ball looped up for Leonardo to head in.
City were stung again moments later as Al Hilal quickly recycled the ball from a corner they were defending before Malcom broke from halfway and buried a low shot into the far corner in the 52nd minute.
But City equalised just three minutes later as Silva's corner led to a goalmouth scramble and Haaland pounced from close range to level, but, far from settling nerves, the Premier League side remained vulnerable.
Malcom was brought down by Dias for what seemed a certain penalty, only for an offside flag to spare City. It also took a good recovery tackle by Manuel Akanji to prevent Malcom from getting in another shot, and Mohamed Kanno fluffed a free header.
City were inches away as Akanji headed against the post, and Haaland's follow-up was cleared off the line as the game headed to extra-time.
City, who lost Haaland to injury, were stunned when Al Hilal reclaimed the lead with Koulibaly's powerful header.
Yet the drama was far from over as Foden, having come off the bench to replace another substitute in the ineffective Rodri, exquisitely volleyed in from a Rayan Cherki cross.
Al Hilal refused to lie down and scored yet again as Leonardo pounced to settle the contest after Ederson had pushed away a header from Sergej Milinkovic-Savic.
Guardiola: We were so open in defeat
Man City boss Pep Guardiola:
"It is a pity. We have been on an incredible journey together and were in a good place. The vibe was really good.
"I cannot thank the players enough for training and playing how they have been.
"But it was a difficult game. The margins were minimal. We created a lot and [Yassine] Bounou made incredible saves but we were so open.
"We would have loved to have continued, it will only be once every four years, and we had a feeling that the team was doing well.
"But we go home and now it is time to rest and rest our minds for the new season.
"We regret a little bit that we allowed them to run a bit more. They defended so deep, the wingers were so quick and Bounou made a lot of saves.
"In the end, we have to score and be clinical. They arrived more in the transitions. They did not create much in the first half - we did but could not finish it.
"I had a feeling we could go through but they punished us on the transitions."
Silva: We lacked concentration and organisation
Man City midfielder Bernardo Silva:
"What lacked was from our side; a bit more concentration, a bit more organisation when we lost the ball to control, especially the transitions.
"The ball we had again, the chances we had again. After all, we scored three and could've scored five, six.
"It was all about controlling when we lost the ball, controlling the transitions, don't let them run, and they ran away too many times. With one, two passes, there was always a feeling of danger coming from them.
"When we allow teams to run like this we always suffer a lot, and today was the case.
"A lot of disappointment because we wanted to do better, we wanted to go to the quarter-finals, we had a lot of ambition for this competition. But yeah, it's football; they were good today.
"We didn't control some situations that we should've done better, but overall congratulations to them. They're a good team, very good individually, created us a lot of problems and they deserved [to win]."
Inzaghi: We climbed Mount Everest
Al Hilal head coach Simone Inzaghi:
"The key to this result was the players, the heart they put on the pitch.
"We had to do something extraordinary because we knew how good Manchester City are, we knew we had to climb Mount Everest without oxygen, and we were great.
"Guardiola is the best coach in the world, but tonight we did our best and we deserved the result."
Could Al Hilal go all the way to win tournament?
Sky Sports News' chief reporter Kaveh Solhekol in Orlando:
"It was an absolutely extraordinary game that Manchester City really should have won. I think they had the players to win the game but I'm not sure they had the right tactics or the right strategy - and they played into Al Hilal's hands. The way Al Hilal want to play a game when they're facing a side as good as Manchester City is to defend deep and hit their opponents on the break and that is exactly what they did. They're devastating on the break.
"City basically spent the whole game camped outside Al Hilal's penalty area and when they were unable to break through. Al Hilal hit them on the break and you have to say they deserved their victory. It really tells you that Saudi Arabian football is perhaps a little better than people give it credit for.
"When we talk about Saudi Arabian football we always talk about money, transfers, the massive wages - but I do think that something is happening in Saudi Arabia. Their football is developing fast and Al Hilal so far in this tournament have been unbeaten and they've come up against sides like Real Madrid, they've beaten Manchester City and now there's a chance that they could make it all the way to the final. If you look at the draw their next game is against Fluminense of Brazil here in Orlando and then they will face either Chelsea or Palmeiras - and if they get past either of those two sides then they will be in the final in New Jersey.
"It's probably the best result in the history of Asian club football. I don't think it's the best result in the history of Asian football because if you go back a couple of years to the 2022 World Cup in Qatar, Saudi Arabia beat Argentina who ended up winning that World Cup, so most Saudi Arabian football supporters you would speak to would say that is the best result ever in the history of Saudi Arabian football, but when it comes to club football this comes very close to that win for Saudi Arabia against Argentina.
"Al Hilal are arguably the biggest club in Saudi Arabia, their fans would tell you they have more supporters than any other side in Saudi Arabia and speaking to some of the Saudi journalists who are here in the US, they are telling me that people in Saudi Arabia are going crazy for this club World Cup. They know that the tournament has its critics, especially in Europe, but they have embraced it and for them it's something very special for a team from Asia to play a side like Manchester City, not in a friendly but in a competitive game.
"This is a very special night for Saudi Arabian football and one of their players, the midfielder Sergej Milinkovic-Savic, we were speaking to him and he said to us: 'Do you remember two years ago you were all criticising me for going to Saudi Arabia, you were saying that I was only going for the money? Well, are you still criticising me?'"
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