Australia set what seemed an imposing target of 336, but Ross Taylor, Peter Fulton and Craig McMillan belted New Zealand to five-wicket victory with an over to spare on Sunday.
They now hold an unbeatable 2-0 lead in the three-match Chappell-Hadlee Trophy series.
It was Australia's fourth successive loss and second successive series defeat as the reigning world champions continue to struggle in a drastic form slump a month out from the World Cup. South Africa now take over as the number one ranked team.
Stung by their 10-wicket loss to New Zealand in the first match of the series on Friday, Australia scored at will from all the New Zealand bowlers with the exception of Shane Bond.
Their 336 for four, with a headline captain's knock of 105 from Mike Hussey, was a record score on the Eden Park pitch, easily eclipsing New Zealand's 304 for five against Sri Lanka 24 years ago.
But it was a short-lived record as Taylor's 117 and an unbeaten 76 from Fulton provided the backbone of the New Zealand innings, before a quick-fire 52 in 30 balls from McMillan provided the final impetus.
He came to the crease with New Zealand requiring nine an over, and departed with four overs remaining and the target down to a run a ball.
New Zealand's run chase started shakily when captain Stephen Fleming, who is struggling for consistency, fell to Nathan Bracken in the third over for six.
Fellow opener Lou Vincent, who has been enjoying a golden run this summer, saw his luck desert him in the eighth over, also to Bracken and New Zealand were in trouble at 47 for two.
Taylor and Scott Styris brought up the century but Styris never looked comfortable and when he went in the 20th over for 17 New Zealand appeared to be in trouble at 113 for three.
However, the arrival of Fulton was the start of New Zealand's fightback.
The tall right-hander, known as "two-metre Peter" admitted to being hurt after he was dropped from the New Zealand squad for the series and only regained his place when all-rounder Jacob Oram was injured in the first match.
With a point to prove, Fulton set about backing up Taylor and they put on 115 for the fourth wicket before Taylor top-edged Watson to Hussey at midwicket.
Fulton brought up his half-century with a towering six that was caught by Cameron White inside the field of play, but the Australian stepped back over the boundary rope with the ball in hand.
He gave no other chances and his 76 off 65 balls included five fours and two sixes.
McMillan blazed away with seven fours and two sixes in his 52 before he was caught by Hussey off Watson two balls in a row. He was called back the first time for a no ball but on the next delivery he played an identical shot to a legitimate ball.
The result was a drastic swing of fortune for the Australians after being sent into bat and posting the morale-boosting innings from Hussey and an unbeaten 97 from Brad Hodge.
Matthew Hayden and Phil Jaques plundered 17 off the opening overs from Daryl Tuffey, to offset the unplayable deliveries at the other end from Bond whose opening six-over spell conceded just seven runs.
They also punished New Zealand for omitting quick bowler James Franklin from the playing 11, with the fifth bowling option shared among part-timers Styris, McMillan and Vincent. Between them, the three gave up 102 runs from 11 overs.
McMillan was the only one to take a wicket when -- for the second game in a row -- he dismissed Hussey, this time to a phenomenal catch by Taylor who took the ball just inches off the ground running in from long on.
The final match in the series is in Hamilton on Tuesday.