James Maddison opened the scoring in the first half before Yoshinori Muto forced spot-kicks. Jonjo Shelvey and Isaac Hayden then missed decisive spot kicks in the shootout.
Which players shone and struggled in the cup exit? Scroll and click through the pages to see how Liam Kennedy rated every individual player.
. NEWCASTLE UPON TYNE, ENGLAND - AUGUST 28: James Maddison of Leicester City scores his team's first goal during the Carabao Cup Second Round match between Newcastle United and Leicester City at St James' Park on August 28, 2019 in Newcastle upon Tyne, England. (Photo by Ian MacNicol/Getty Images)
NEWCASTLE UPON TYNE, ENGLAND - AUGUST 28: James Maddison of Leicester City scores his team's first goal during the Carabao Cup Second Round match between Newcastle United and Leicester City at St James' Park on August 28, 2019 in Newcastle upon Tyne, England. (Photo by Ian MacNicol/Getty Images) | Getty Images Photo: Ian MacNicol
. Karl Darlow - 7
Commanding performance from the second choice keeper. Smothered, collected and cleared with purpose - 7 | Getty Images Photo: Ian MacNicol
. Emil Krafth - 6
Got forward really well - went close with a volley in the first half but added to United's lengthening injury list - 6 | Getty Images Photo: Marc Atkins
. Fabian Schar - 7
Strolled through the game. Excellent on the ball in a very positive United backline show - 7 | Getty Images Photo: Mark Runnacles
. Federico Fernandez - 8
Pick of the bunch. Man of the match by some distance. Will be pretty hard to drop after that performance - 8 | Getty Images Photo: Ian MacNicol
. Ciaran Clark - 6
Ciaran Clark - Never lets United down. Solid, dependable and it's easy to see why Steve Bruce kept him around - 6 | Getty Images Photo: Mark Runnacles
13. Javier Manquillo (Emil Krafth 50) - 6
Unlucky not to make the team for this one. Ran the right side well. - 6 | Getty Images Photo: Alex Livesey
14. Paul Dummett (Jetro Willems) - N/A
Not on field long enough to issue rating. | Getty Images Photo: Lintao Zhang