"It was a game of two halves for us," said Newcastle manager Eddie Howe, who brought on Bruno Guimaraes and Anthony Gordon after the interval.
It was the third year in a row that City, winners four times in a row from 2018 to 2021, had gone out of the competition early.
"We played an incredible game," City manager Pep Guardiola told Sky Sports television.
LIVERPOOL THROUGHManchester United beat Crystal Palace , also their league opponents next weekend, 3-0 at Old Trafford on Tuesday.
Blackburn Rovers thrashed Championship rivals Cardiff City 5-2 in the highest scoring match of the night and are at Chelsea next.
Persons:
Alexander Isak, Isak slotting, Phil Foden, Erling Haaland, Nick Pope, Julian Alvarez, Eddie Howe, Bruno Guimaraes, Anthony Gordon, Pep Guardiola, Sean Dyche's, Cody Gakpo, Kasey McAteer's, Dominik Szoboszlai, Diogo Jota, Juergen Klopp, Alex Iwobi, Aaron Ramsdale, David Raya, Reiss Nelson, Alan Baldwin, Toby Davis
Organizations:
Newcastle, Man, St James, Park Magpies, Manchester United, Liverpool, Leicester, Brentford Chelsea, Everton, Fulham, Newcastle United, Manchester, League, City, Sheffield United, Sky Sports, Southampton, LIVERPOOL, Crystal, Old, ., Brighton & Hove Albion, Chelsea, Aston Villa, Brentford, Arsenal, Burnley, Leicester City, Anfield, Premier League rivals Bournemouth, Stoke City, Norwich City, Ipswich Town, Ipswich Town . West Ham United, Lincoln City, Gunners, Community, Blackburn Rovers, Cardiff City, Thomson
Locations:
West Ham, LONDON, Manchester City, Swedish, Joelinton, Newcastle, Old Trafford, Nigeria, Ipswich Town ., Lincoln, London