Arsenal, who are currently atop the Premier League, were eliminated from the Carabao Cup as a surprise away victory by Brighton.
Reiss Nelson’s run from the halfway point was followed by a curling finish from Eddie Nketiah, giving Arsenal the lead.
After being fouled by the home team’s rookie goalkeeper Karl Hein, Danny Welbeck, who represented the Gunners in the 2018 final, converted a penalty kick to tie the score at one.
Following a deft passing play, Kaoru Mitoma gave Brighton the lead, and Tariq Lamptey added a third with a low strike.
Only three times in 20 games across all competitions, including this third-round match, had Arsenal lost this season.
Mikel Arteta made 10 changes from the 1-0 win at Chelsea and the Gunners looked on course for the last 16 when they took the lead through Nketiah’s excellent 20th-minute strike.
But their advantage only persisted for seven minutes.
Hein, a 20-year-old goalkeeper representing Estonia who spent part of last season on loan at Reading, was making his first senior appearance for the Gunners when he brought down Welbeck, who then scored from the spot.
Albert Sambi Lokonga and Nketiah both missed shots from outside the box as Arsenal came dangerously close to regaining the lead.
Those errors cost Brighton dearly as Mitoma scored twice in five days, including one on Saturday in a 3-2 victory at Wolves, and Lamptey added a third.
Arsenal manager Arteta believed it was the right move to make 10 changes.
“I would select the same players if I had the opportunity again,” he said. “There was a big difference between efficiency in both areas and we paid a big price for it.
“It’s a shame for the boys because they really tried and we should have scored two or three in the second half.”
When asked if the result suggests Arsenal need to add to their squad in the January transfer window, Arteta said: “That’s the squad that we have. We have to utilise in the best possible way and today we came short.
“It’s the same squad as when we win. I said from day one that we have a short squad because at the end we left some players. It’s what we have.”
Brighton’s best EFL Cup performance was in 1978–1979 when they advanced to the quarterfinals, but this is the third straight year that they have advanced to the round of 16.
Following the Manchester United vs. Aston Villa game at Old Trafford on Thursday night, the draw for the next round will take place.