Atletico Madrid had to withstand a second half pounding to reach the semi-finals for the third time in the last four seasons.
A first half goal by Saul Nigeuz put the Spaniards two-up on aggregate and gave the Foxes a mountain to climb.
It left them needing three to reach the last four but Craig Shakespeare’s battlers couldn’t be faulted for their second half efforts.
Jamie Vardy gave them hope by equalising on the hour and Vardy and sub Leonardo Ulloa had goal-bound shots blocked.
But Diego Simeone’s team underlined their status as Europe’s mean machine but holding out to go through on a 2-1 aggregate, although Leiocester will feel aggrieved that the first leg penalty earned and converted by Antoine Griezmann should not have been given.
Kasper Schmeichel was beaten by Saul Niguez in the first half
Saul Niguez opened the scoring for Atletico Madrid
A huge pre-match boost for Leicester, especially with Robert Huth suspended, was that skipper Wes Morgan passed a late fitness test after missing six matches because of a nerve problem in his back.
The teams walked into a colourful wall of noise with pyrotechnics, blue, gold and silver flags and the usual clappers cranking up the noise decibel level in the Kingpower Stadium. And Leicester responded with a positive start.
Morgan won his first headed duel, Jamie Vardy put in a sharp tackle on Juanfran while keeper Kasper Schmeichel showed his confidence by coming out of his goal to dribble a back pass round the advancing Antoine Griezmann.
But not surprisingly there was little goal mouth action in the opening 20 minutes. After all, Leicester are the lowest scorers left in the competition while Atletico boast Europe’s best defensive record.
Despite needing a goal however, Leicester did not need to throw caution to the wind against such dangerous counter-attacking opponents and they had to wait 24 minutes before creating their first chance.
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Rihad Mahrez played a superb ball through for Vardy who turned the ball back from the bye line for Shinji Okazaki to fire wide although the presence of Diego Godin ensured he didn’t have a clear sight of goal.
Moments later Atletico took the lead.
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Morgan did well initially to intercept Koke’s through ball intended for Yannick Casrrasco. But when the loose ball was played back to Filipe Luis he sent over a superb cross to the back post where Saul was left unmarked to run in and plant a firm header back across Schmeichel’s goal and into the far corner of the net.
It was a well-taken goal but fingers were pointed at both Christian Fuchs and Marc Albrighton for not spotting the danger and leaving Saul in splendid isolation.
The goal left the Foxes with an even steeper uphill task. If scoring two against Atletico was tough enough, now they needed three.
Their best hope was set-pieces – 50 per cent of their 10 goals in the competition have come that way.
Jamie Vardy equalised for Leicester
But Atletico handled anything that came into their penalty area with calm assurance with keeper Jan Oblak in commanding form.
Shakespeare made changes to both personnel and formation at the break in a bid to get Leicester back in the game.
He brought on Leonardo Ulloa and Ben Chilwell to give his side more attacking potency and switched to a back three and it sparked a tremendous second half effort by the Foxes.
Chilwell came close to an equaliser when he sent a dipping volley just over the bar but that came moments after Atletico should have gone two-up after a brilliant run by Griezmann which underlined why he is on the transfer radar of most of Europe’s top clubs.
The Frenchman showed tremendous pace and skill to accelerate past three Leicester players but just as looked as if he would shoot, he squared the ball to strike partner Carrasco who was denied what looked a certain goal by Albrighton’s last-ditch challenge.
Leicester fans created a sea of blue, silver and gold before kick-off
Albrighton had given away the controversial first leg penalty – when his challenge on Griezmann was clearly outside the box – but this time much to his relief the referee got it right.
He then popped up at the other to play a vital part in an equaliser that fired Leicester’s hopes of an unlikely comeback. From Albrighton’s cross youngster Chilwell’s shot was blocked and Vardy pounced from close range.
Atletico were rattled. Ulloa had a close range effort blocked by sub Hernandez, Vardy’s goal bound strike was blocked by Stefan Savic and Wilfred Ndidi fired just wide.
Leicester (4-4-2): Schmeichel; Simpson, Morgan, Benalouane (Chilwell 46), Fuchs; Mahrez, Ndidi, Drinkwater, Albrighton; Okazaki (Ulloa 46), Vardy. Goal: Vardy 60. NEXT UP: Arsenal (a) PL – Wed April 26.
Atletico (4-4-2): Oblak; Juanfran (Hernandez 55), Savic, Godin, Filipe Luis; Saul, Gabi, Gimenez, Koke; Carrasco, Griezmann. Goal: Saul 26.