United lost 2-1 at Basel in Group C with Socceroo's midfielder Scott Chipperfield coming on as a late substitution for the Swiss side while City were eliminated despite beating Bayern Munich 2-0.
Their fate in Group A was sealed when rivals Napoli beat Villarreal 2-0 in Spain.
Six years to the day since United last bade farewell at the group stage, following a 2-1 loss at Benfica, last year's beaten finalists were undone by goals in each half from Marco Streller and Alexander Frei.
Despite needing just a point to go through from Group C, Sir Alex Ferguson's side fell to their first away defeat in the group phase in five years, but not before Phil Jones' late goal had given them a vain glimmer of hope.
Victory allowed Basel to book their place in the last 16 for the first time since 2002-03, while for United, who had reached three of the past four finals, there is the unwelcome consolation of the Europa League.
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