A James Horsfield penalty and a sweet strike from Brandon Barker were not enough to prevent a second loss on the bounce for the young Blues.
City were looking to return to winning ways after suffering a first defeat of the season away to Fulham last Saturday.
Billy O’Brien returned to his place between the sticks and there was a start for Thierry Ambrose, who made an impressive cameo from the bench against the Cottagers last time out.
Elan Assiani partnered Nathaniel Oseni in the centre of defence, while Ash Smith-Brown and Jack Byrne started on the bench after their exertions in the UEFA Youth League in midweek.
Barker is enjoying a prolific start to the season and was involved straight from the kick off, forcing a save with a smart shot from close range.
The opening exchanges were lively at both ends – Pablo Maffeo was forced to make a vital interception to prevent an early chance for the visitors, while keeper Billy O’Brien was called into action after ten minutes due to a defensive mix-up.
City carved out the most promising opening, seeing the ball flash tantalisingly across the face of goal from a corner with no one quite able to get the final touch. But it was the hosts who struck first. A Liam Kelly free kick on the left hand side sailed over the wall and nestled in the top corner.
O’Brien did well to save from an identical strike from the opposite side just minutes later, but could not prevent Reading’s second when Liam Stacey had the easiest of tap-ins.
Birthday boy James Horsfield halved the deficit shortly before half time. Thierry Ambrose was brought down in the area and the Blues’ captain confidently sent the keeper the wrong way before slotting the ball into the bottom corner.
The boy Blues came out fighting after the restart, and substitute Dom McHale forced a smart stop with his first involvement, while Maffeo surged forward and saw his shot sail just past the top corner.
Barker found a well-deserved equaliser just before the hour mark, collecting a delicious pass from Kean Bryan and placing the ball far beyond the reach of the keeper.
A sucker punch arrived five minutes later in the form of a Reading free kick, which took a wicked deflection to leave O’Brien stranded, and Liam Kelly added his second and the visitor’s fourth twelve minutes from time.
The team will be looking to put defeat behind them when they visit Tottenham next Saturday.