In a match that ebbed and flowed, both teams perhaps felt they created enough chances to win in 90 minutes, before extra-time was required to settle things.
And it was the Gunners who edged into the showpiece event, netting the crucial goal three minutes after the restart.
Despite the disappointment in North London, Gareth Taylor’s side can be proud of our high-quality performances en route to, and in, the last-four tie.
City started the brighter of the two sides, but it was Arsenal who had the best chance of the opening stages - only to be denied by Sandy MacIver’s brilliance.
The 24-year-old had started all-but one League Cup match this term and showed her class inside five minutes when thwarting Laura Wienrother with her feet - after the full-back’s driven effort looked certain to find the net.
On a crisp north London night, Lauren Hemp was aiming to hit 50 goals for the Club and came close to doing so when spotting Sabrina D’Angelo off her line from the left-hand side, before her lobbed effort was caught by the Canadian.
On the opposite flank, Chloe Kelly was in familiar surroundings against her former club – after spending her early professional years with the Gunners.
And she almost broke the deadlock after producing a trademark burst down the right, before cutting onto her left and drilling towards goals, although D’Angelo was able to hold her powerful effort.
Taylor’s side were in the ascendency for much of the opening half and came inches from breaking the deadlock when a cross from Hemp was met with a thunderous Khadija ‘Bunny’ Shaw volley which just flew over the bar
The temperature was rising on the pitch on a freezing evening at Meadow Park as a few mistimed tackles from both teams sparked unhappy reactions from the instigators and those on the receiving end.
And the action soon sprung back into life after the break when Laia Aleixandri found space on the edge of the box and directed a well-timed volley inches wide into the side netting after ball fell to her following a corner.
Kelly entered the tie in strong goalscoring form, bagging two in her last two matches, and almost made it three in as many games when dancing into the box and drilling a venomous effort which was deflected just past the post.
Just as City were pushing for the first goal of the evening we almost found ourselves behind when Caitlin Foord sent a looping cross back across the face of goal which Lina Hurtig crashed onto the crossbar from six-yards out.
Admittedly, it was a huge let off for City as it looked harder for the Swede to miss than score with the goal at her mercy.
Without having many saves to make, MacIver's razor-sharp focus was put to the test in the closing stages of normal time.
Arsenal flooded the box before the ball was pumped into the area, where Hurtig made the most of a fortuitous bounce to direct an effort at goal but our 'keeper reacted well and palmed away the danger.
That proved to be the last notable action of the 90-minutes as extra-time was required to separate the sides.
And Arsenal took the lead three minutes after the restart when Blackstenius evaded her marker to tap home a neat cut-back from the left.
It was the first goal we'd conceded in the competition and also a harsh ending to City's Conti Cup campaign.
PLAYER OF THE MATCH: Alex greenwood
The defender dealt expertly with the Arsenal threat throughout and hardly put a foot wrong.
Yet another assured and classy performance from the England international.
HOW WE LINED UP
Sandy MacIver was protected in goal by a back four of Kerstin Casparij, Alanna Kennedy, Alex Greenwood and Laia Aleixandri.
Yui Hasegawa anchored the midfield behind Filippa Angeldahl and Deyna Castellanos.
And Khadija ‘Bunny’ Shaw played in-between Chloe Kelly and Lauren Hemp who operated on the flanks.
City XI: Sandy MacIver, Kerstin Casparij (Laura Coombs 100'), Alanna Kennedy (Steph Houghton 90'), Alex Greenwood (C), Laia Aleixandri (Leila Ouahabi 80'), Yui Hasegawa, Filippa Angeldahl (Mary Fowler 112'), Deyna Castellanos, Chloe Kelly (Hayley Raso 90'), Khadija ‘Bunny’ Shaw, Lauren Hemp
Substitutes: Ellie Roebuck, Julie Blakstad, Jemima Dahou
Arsenal XI: Sabrina D’Angelo, Leah Williamson (Jen Beattie 83'), Lotte Wubben-Moy (Stephanie Catley 63'), Rafaelle Souza, Laura Wienroither (Noelle Maritz 76'), Frida Maanum, Kim Little, Victoria Pelova (Lina Hurtig 63'), Katie McCabe, Caitlin Foord, Kathrine Møller Kühl (Stina Blackstenius 63')
Substitutes: Manuela Zinsberger, Lia Walti, Kaylan Marckese, Michelle Agyemang
WHAT IT MEANS
Defeat signals the end of our 2022/23 Continental Cup campaign after a strong tournament which saw us score 18 goals and concede only once.
We once again face Arsenal next time out – this time in the Barclays Women’s Super League in what’s promising to be an exciting affair at the top of the table.
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