Manchester United face an uphill battle to reach the Europa League quarter-finals after a shock first-leg defeat by a fearless Athletic Bilbao side.
Wayne Rooney smashed United ahead from close range before Fernando Llorente's header drew the visitors level.
But the cavalier Spaniards refused to settle for a draw as United failed to win yet another European home game.
The hosts were stunned by second-half goals from Oscar de Marcos and Iker Muniain before a late Rooney penalty.
Defeat leaves United with just one win from their five European games at Old Trafford this season, with the solitary victory coming in less than convincing fashion against Romanian minnows Otelul Galati.
After their disappointing Champions League exit, United are seeking some solace by attempting to win the continent's secondary competition and therefore become only the fourth side, after Juventus, Ajax and Bayern Munich, to win all three major European club trophies.
But Sir Alex Ferguson's men have left themselves with a tough task to even make the last eight after an entertaining clash against the fifth-placed La Liga side.
A stunning performance from Marcelo Bielsa's energetic and aggressive Bilbao team shocked Old Trafford and the Spaniards could have run away with victory but for several superb second-half saves from their countryman David de Gea.
However, the home side were given a glimmer of hope when Rooney kept his cool from the penalty spot after De Marcos inexplicably handled inside his own box with just seconds left.
Teenage attacker Muniain pulled all the strings around the home box after the break, going close himself with a fierce drive and setting up Llorente, before De Marcos slammed home Ander Herrara's lofted pass.
And the vociferous 6,500 Bilbao fans packed inside Old Trafford were left in dreamland when Muniain pounced on a catalogue of errors from United's dozy defenders in the final minute.
However, there was an element of controversy about the decisive goal with Patrice Evra penalised for kicking the ball without his boot.
United boss Ferguson fielded a strong side and warned his players beforehand to wake up from their European slumber or face the consequences against Bilbao.
Rooney fired United ahead against the run of play when Javier Hernandez's shot was parried by keeper Gorka Iraizoz after the Mexican twisted into space inside the away box.
But Ferguson watched his players offer plenty of encouragement to Bilbao with yet more of the sloppy defensive errors which have typified their continental woes this season.
Bilbao arrived at Old Trafford with a burgeoning reputation after an encouraging domestic season under the guidance of former Argentina and Chile boss Bielsa, who arrived in the summer.
The Argentine has breathed new life into the Basque club and its fervent support can continue to dream that their 28-year trophy drought may be about to end.
Bielsa's side, with an average age of less than 24, have not been afraid to show their youthful exuberance in La Liga this season, playing with an attacking intent that has yielded a goals tally bettered only by Barcelona and Real Madrid.
Certainly the hosts had to be alert from the first whistle with Bilbao not allowing them any time to relax on the ball with their high-tempo pressing game.
A frantic first half saw the game sweep from end-to-end as both sides tried to take the contest by the scruff of the neck.
Llorente cancelling out Rooney's opener was fair reflection of the opening 45 minutes, but any hopes United had of Bilbao settling for an away goal and draw swiftly evaporated after the break.
For all their relentless, attacking instincts there was a suspicion United may be able to exploit the space left behind Bilbao's high line and punish their wastefulness.
But those fears failed to materialise as a marginally offside De Marcos - and then Muniain, who capitalised on hesitancy from Rafael - finally made United pay.
With the scoreline at 3-1 it seemed United's Europa League participation looked over, before Rooney's penalty kept the tie alive ahead of next Thursday's second leg.