The young Foxes had scored 10 goals in three matches to seal league victories over Arsenal and Swansea City as well as a Premier League Cup draw at Manchester United last week.
However, with the visit of regular U18 league challengers Chelsea on Saturday, City's youngsters, who remained within one goal of the Blues until the hour-mark, suffered only their third defeat of the season.
Joe Haigh handed the west London side the lead in the 19th minute with a close-range finish at the near post, but Leicester dramatically hit back shortly after the half-time interval.
With 59 minutes on the clock, Blues defender Levi Colwill was adjudged to have committed a foul in the area, allowing Shane Flynn to step up and equalise for the young Foxes from the penalty spot.
However, Chelsea won a penalty of their own just two minutes later and, while City goalkeeper Oliver Bosworth saved Armando Broja's initial effort, the Blues man was there to convert the rebound.
Their lead was increased in the 64th minute, meanwhile, as Charlie Wiggett seized on a loose ball in City's box to volley it beyond Bosworth and make it 3-1 to Chelsea.
As Leicester surged forwards in search of another goal in added time, they were then hit on the counter as Henry Lawrence slid it across for substitute George Nunn to complete a simple finish.
City, who are now seventh in the South table, return to U18 Premier League action on Saturday 19 October in a visit to Staplewood Training Ground to tackle Southampton (12:30pm BST kick-off).
City: Bosworth; D. Gyamfi, Sams, Barrett, Flynn; Pennant, Tavares, Arlott-John, Loughlin, Fitzhugh; Russ (McAteer 72')
Subs not used: Odunze, Aisthorpe, Murch, Marcel-Madivadua
Goal: Flynn (pen) 59'