England lost three wickets in the space of five balls as New Zealand won a tense World Twenty20 Super Eights match by five runs at Kingsmead on Tuesday.
The defeat probably ensured that New Zealand would reach the semi-finals while England faced almost certain elimination.
England seemed on course for a win when they restricted New Zealand to 164 for nine.
New opening pair Darren Maddy and Vikram Solanki put on 64 for the first wicket. Maddy seemed well on the way to a man of the match performance when he made 50 off 31 balls after pulling off a direct-hit run-out and taking two wickets but he became the first of three run-out victims as the England challenge subsided.
Needing 20 to win off the last two overs, England's hopes crashed when Owais Shah was run out after he and Luke Wright had put on 42 for the sixth wicket.
New batsman Dimitri Mascarenhas was caught at deep cover off the next ball from Shane Bond and Wright followed in the same way three balls later.
"We were one good innings, one partnership away from winning," said England captain Paul Collingwood.
Earlier England were on top, with New Zealand in deep trouble at 40 for four after nine overs.
But Scott Styris (42) and Craig McMillan (57) went on a six-hitting blitz.
Styris hit four sixes in an innings of 42 off 31 balls, three of his sixes coming off successive balls from Dimitri Mascarenhas.
McMillan, who was named man of the match, also hit four sixes in making 57 off 31 balls.
Maddy brought England back into the game by running out Styris from deep midwicket, then dismissing McMillan and Jacob Oram in his only over of medium-pace bowling.
"The boys bowled pretty well," said Collingwood. "But New Zealand got away in the middle part of the innings. Styris and McMillan played some wonderful shots."
New Zealand captain Daniel Vettori produced another telling spell of left-arm spin bowling, taking the first wicket when Solanki was caught at long-off and bowling Kevin Pietersen when the England batsman attempted a reverse sweep.
Vettori took two for 20 off his four overs. He also was responsible for the run-out of Shah.
"There are a couple of things we need to tidy up, particularly our fielding, which we pride ourselves on," said Vettori. "But the bowling in the middle stages and at the death by Mark Gillespie was fantastic."