Brighton flew out of the traps and City were behind inside two minutes, as Cameron Peupion finished from eight yards out.
The Albion attacker was at the double when he headed in from a corner, but Will Dickson halved the deficit before half time.
Our young charges came out pushing for the equaliser, and were rewarded when Carlos Borges fired home from close range.
But late in the contest, Peupion completed his hat-trick after nodding in from a cross to consign us to our first league defeat since October.
Despite the disappointment of our unbeaten run coming to an end, City remain in the driving seat for the PL2 title, four points clear of second-placed Chelsea ahead of our clash at the Academy Stadium next Sunday.
WHAT HAPPENED
As we kicked off on the south coast, City knew three points this afternoon would take us closer to lifting the Premier League 2 title for a third successive campaign.
But it was Brighton who took the lead inside two minutes.
Former City academy player, Luca Barrington, fizzed a ball down the left to Imari Samuels whose pass across the face of goal was tapped in by Peupion.
Brian Barry-Murphy’s side nearly produced a perfect response, when Alex Robertson‘s powerful effort beat Killian Cahill in the Brighton goal, but rattled the post and went out for a goal kick.
Moments later, Borges raced through on goal and was one-on-one with Cahill, but the keeper’s outstretched foot denied PL2’s leading scorer on this occasion.
City were pushing the hosts back with the ball but were unable to create any real threat with possession.
With this pressure not being capitalised on, it was the Seagulls who went further ahead when Peupion headed home from a corner for his second of the match to give City a mountain to climb.
But just as Brighton saw a third goal by Sam Packman ruled out for a foul on Robertson, we were able to halve the deficit.
Five minutes before the interval, Dire Mebude raced down the wing, before he pulled it back to Will Dickson, who buried it into the back of the net to give us belief going into the second half.
We came out energised after the break as we searched for another goal to square the game.
City countered from an Albion corner, Borges was in again one-one-one against the Brighton shot stopper but his lofted effort at the near post was smothered got to it.
But equally, the Seagulls were flying at the City backline as they looked to restore their two goal advantage.
Peupion, who was hunting for his hat-trick, had a low effort cleared, and Cieran Slicker had to get down well to tip a dangerous Jack Hinchy effort wide.
As the clock ticked towards the 70 minute mark, Borges finally got the goal his performance deserved as he powered the ball past Cahill from inside the six-yard box to square the game.
And City had a chance to win it in the last five minutes as substitute, Ben Knight, created some space for himself on the edge of the box, before seeing his effort deflected wide for a corner.
But it was devastation for our young blues, as Peupion completed his hat-trick on 89 minutes.
Samuels combined with Duffus for the Seagulls down the left, before he floated in a pinpoint cross to the unmarked forward, allowing him to nod home the winner.
HOW WE LINED UP
Cieran Slicker took the no.1 shirt and started in goal, and he was protected by a back four of Lakyle Samuel, Shea Charles, Isaac Smith and Kane Taylor.
Kian Breckin and Alex Robertson sat together in central midfield with Oscar Bobb pushing further forward in an attacking midfield role, supporting the forward line.
Will Dickson returned to the line-up as a lone striker, with Dire Mebude and Carlos Borges positioned on the flanks.
Brighton U21s
XI | Cahill, Nilsson, Samuels, Packham (C), Kavanagh, Chouchane, Peupion, Hinchy, Moran, Hinshelwood, Barrington
SUBS | Mullins, Talley, Duffus, O’Mahony, McConville
Manchester City EDS
XI | Slicker, Samuel, Charles (C), Smith, Taylor, Robertson, Mebude, Breckin, Dickson, Bobb, Borges
SUBS | Adam, Murray-Jones, Hamilton, Knight, Agyemang
WHAT’S NEXT
Next weekend, all eyes will be at the Academy Stadium as we play host to second placed Chelsea in a potential title decider.
Kick off is scheduled for Sunday 16 April at 12:00 (UK).
The clash will also be available to watch live on both CITY+ and Recast.
Next Fixture
All fixturesPremier League 2
BST
