United were set to reach the next round when an own goal by Josuha Guilavogui levelled the scores at 2-2 with eight minutes left but Naldo grabbed his second.
VfL Wolfsburg reached the Champions League last 16 and dealt a knockout blow to Manchester United with a 3-2 victory on Tuesday that secured top spot in Group B and condemned their opponents to the Europa League.
United had taken an early lead in Germany when Anthony Martial expertly sidefooted home after 10 minutes, but Brazilian centre back Naldo drew the Germans level with a precise volley and Portuguese midfielder Vieirinha swept home to make it 2-1.
United were set to reach the next round when an own goal by Josuha Guilavogui levelled the scores at 2-2 with eight minutes left but Naldo grabbed his second and left the visitors needing PSV Eindhoven to lose at home to CSKA Moscow.
For a brief moment late in the second half it looked like United would get their wish, but PSV rallied to level and then snatch a 2-1 win that left them second in the standings on 10 points, two ahead of United and two behind Wolfsburg.
After Andre Schuerrle had flashed an early effort over the bar for Wolfsburg, United took the lead through Martial after an incisive break led by Juan Mata. The Spanish playmaker was allowed space to turn in midfield and produced a superb defence-splitting pass to find the Frenchman racing through on goal. Martial took a touch, opened his body up and slotted into the corner.
The Germans counter-punched almost immediately, however. Ricardo Rodriguez whipped a free kick into the area and Naldo swung his right boot at the ball to direct a pinpoint low volley past United keeper David De Gea.
GERMANS AHEAD
Wolfsburg took the lead with the game's standout goal after 28 minutes when Portuguese Vieirinha put the finishing touch to an astonishing team move, orchestrated by Julian Draxler. The Germany winger beat two defenders with a drop of the shoulder and a burst of pace before exchanging a quick one-two with Max Kruse and then unselfishly squaring for Vieirinha to sweep home.
United had a goal ruled out at the end of the first half when Jesse Lingard bent a curling shot into the net past keeper Diego Benaglio around the back of Mata. The Spaniard, however, was offside and deemed to be interfering with play despite not touching the ball.
After both keepers showcased their abilities early in the second half, the match took two dramatic turns late on. United levelled when Wolfsburg's Guilavogui deflected a tame header from Marouane Fellaini over Benaglio to put the visitors on track to qualify with PSV then drawing against CSKA.
But Naldo's late header, combined with another goal in Eindhoven, turned the scenario on its head and left United to drop into the second-tier Europa League competition.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Naldo of Wolfsburg")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}