OXFORD United's play-off fate is no longer in their hands after they were leapfrogged by York City, who won the Good Friday meeting between the sides at the Kassam Stadium.
Michael Coulson's penalty early in the second half proved the difference as United were unable to hit the heights they had reached in victory at Plymouth Argyle last weekend.
Referee Oliver Langford did not see the infringement in the box, but his assistant flagged for the spot kick after the ball hit Josh Ruffels's knee and struck Dave Kitson on the arm.
It was a controversial decision but United, who had shaded the first half, struggled to create clear chances all afternoon against a mean defence.
Ryan Williams fired one shot wide when well placed, while Michael Raynes was off-target with two late chances as they slipped to a damaging defeat.
As expected, Gary Waddock stuck with the same side which began the 2-0 win at Plymouth in their previous outing.
It was the first time the U's had named an unchanged side since the reverse fixture against York, in December.
The confidence generated from the win in Devon could be seen in a bright start from the home side.
In the fifth minute, James Constable barged a dawdling Lanre Oyebanjo off the ball down by the corner flag, which was sent flying.
The ball was pulled back to Dave Kitson in space and his shot was deflected over.
Callum O'Dowda, making his first league start at home, also picked up where he left off at Home Park.
He was quickly involved in another promising move, which saw the winger pick out Nicky Wroe. The ball was swiftly moved on to Williams, but he delayed long enough to allow York's defence to smother the chance.
The visitors came into the game on a 13-game unbeaten run and they quickly readjusted to tighten up the contest.
At one stage the best exchanges took place between the two sets of fans.
When City's following made themselves heard, United's support responded with chants of "Wembley", in reference to their Conference play-off win against the Minstermen in 2010.
The visitors' attacking moments were few and far between.
One chance came when Kitson was dispossessed in the centre circle. Despite the veteran's protests for a foul, referee Langford waved play on and a dangerous break was only halted when David Hunt scrambled to concede a corner.
Their best chance fell to Will Hayhurst, who found himself in space after a well-worked move on the half hour mark. The midfielder looked poised to bury a finish ten yards out, but Jake Wright appeared from nowhere to make a brilliant challenge.
Neither goalkeeper was seriously tested before the break.
Highly-rated youngster Nick Pope, had one edgy moment when he fumbled a corner from Josh Ruffels, but fortunately for the City stopper it fell to a red shirt, who cleared.
Constable was kept relatively quiet in his quest to equal the club's scoring record.
The striker only had one effort of note before the break, heading a difficult chance wide from an O'Dowda cross.
United had work to do at the break and the difficulty of their task multiplied when they fell behind two minutes after the restart.
A corner fired into the near post was turned behind by a combination of Kitson and Ruffels, but although the referee awarded another set piece, his assistant flagged for a handball.
Coulson's penalty was assured and although Ryan Clarke guessed correctly, the ball found the corner of the net.
United quickly went in search of an equaliser.
Kitson and Newey had headers scrambled clear from set pieces, while a defensive mistake gifted a chance to Williams in the 56th minute.
Ben Davies hit a clearance into a teammate, which fell to the Australian, but after steadying himself the resulting shot was dragged wide.
It was a rare error from City, whose well-drilled side made life difficult for their hosts.
United were unable to play at the same tempo as they had at Plymouth and as a result did not carry the same threat.
York almost doubled their lead 18 minutes from time, when Hunt cleared a corner off the line.
Alfie Potter and David Connolly were thrown on from the bench in an effort to find a breakthrough in the closing stages.
Constable did have the ball in the net four minutes from time, but the striker was penalised for a handball.
There was still time for two clear chances, which both fell to Raynes.
The centre back blasted the first over after good work from Kitson and Connolly.
He made better contact with the next, but saw a firm header fly just wide as United slipped to what could be a hugely costly defeat.
Oxford Utd (4-2-3-1): Clarke, Hunt, Raynes, Wright, Newey, Wroe, Ruffels, Williams, Kitson, O'Dowda, Constable.
Subs used: Potter (Williams 68), Connolly (O'Dowda 74)
Unused subs: Crocombe, Long, Rose, Davies, Whing.
York (4-4-2): Pope, Oyebanjo, McCombe, Lowe, Davies, Hayhurst (Puri 84), Reed (Montrose 88), Penn, Brobbel, Coulson, Andrew (Bowman 90).
Unused subs: Ingham, Jarvis, Platt, Allan.
Booked: Andrew, Coulson, Reed
Referee: Oliver Langford (West Midlands).
Attendance: 7,118 (781 visitors).