Two changes were made from last week's 7-1 home victory over Southampton as Cole Dasilva and Tyrese Shade came in for Mitch Clark and Callum Hulme.
Leicester switched to a 4-2-3-1 formation with Shade occupying the left wing, Kasey McAteer on the right and Thanawat Suengchitthawon behind forward Jake Wakeling, who netted a hat-trick last time out.
During a fast-paced start in Seagrave, the visitors fashioned the first attempt of the game from George Lewis' shot, which was blocked by Dasilva.
City also threatened within the first five minutes when Vontae Daley-Campbell's cross came out for Sidnei Tavares, whose half volley looked to be heading in until a deflection took the ball just over the top of the net, before Suengchitthawon's resulting corner grazed the crossbar.
The hosts would hit the frame of the goal for a second time from Shade's cross, which clipped the inside of the post.
An even better chance to open the scoring came from Suengchitthawon using his pace to get in behind and round 'keeper Tom Smith, only for two Arsenal defenders to get back on the line and deny a certain goal.
Back at the other end, Miguel Azeez had two efforts in quick succession, seeing his first shot blocked before dragging another wide of the near post.
Suengchitthawon then fed Wakeling, who took the ball in his stride, moved it onto his left and struck a low shot that agonisingly came back off the post once more.
The Leicester forward would soon have another shot blocked ahead of Suengchitthawon heading over from Daley-Campbell's cross, but for all the pressure, City could not find a way through.
That proved costly when Trae Coyle was allowed a free run on goal and made no mistake, sliding the ball past Jakub Stolarczyk on 27 minutes.
The opener gave the visitors more confidence and they could have grabbed a second soon after. Nikolaj Moller was afforded time to assess his options in the box and opted to square the ball across for Lewis, who blazed it high and wide.
City, meanwhile, had to search for the equaliser and from a sharp counter-attack the ball eventually came out to Shade on the left, cutting inside and forcing Smith into a diving stop.
However, it was Arsenal doing most of the pressing as the half drew to a conclusion, winning possession high up the pitch, but Kido Taylor-Hart was unable to take advantage, striking wide of target.
Dasilva also failed to find the target for the home side when Suengchitthawon's free-kick fell to him on the edge of the area, ensuring City would go in at the break behind.
There were fewer clear-cut chances in the second half as the game became more cagey, though the Gunners did fashion one early on via Taylor-Hart and Coyle, who combined before Ben Nelson got a block in to deny Taylor-Hart.
Leicester drew level on the hour mark when Wakeling held the ball up before feeding it through for Suengchitthawon who beat the offside trap and raced clear, slotting the ball home at the second attempt after Smith had spread himself to save the first shot.
The goal gave the hosts confidence and Leshabela soon opened up his body and hit a fierce strike that flew narrowly over the bar, but the rest of the half proved to be stop-start and despite pushing for the winner, Leicester were thwarted by a stubborn Arsenal defence.
Major moment…
On top in spells during the first half, the game threatened to run away from the hosts had they not found the equaliser early in the second half. And it would come thanks to some great play from Jake Wakeling. Often the goalscorer, he turned provider for Thanawat Suengchitthawon, who found the net.
Who impressed?
Thanawat Suengchitthawon was a bright spark throughout, largely playing as a creative No.10, but also drifting out wide on occasions. He used his pace to great effect, including for the goal and was calm under pressure to find the net at the second time of asking, scoring his second goal in as many games in the process.
Where does it leave us?
Leicester remain 11th in the Premier League 2 Division 1 standings but now sit one point clear of the relegation zone and within four of Arsenal in 10th.
Coming up…
Next up for the young Foxes is a trip to face Liverpool Under-23s at Liverpool Academy on Sunday 2 May (1pm BST kick-off).
The details…
City: Stolarczyk; Daley-Campbell (O'Connor 46') (Hughes 90'), Nelson, Flynn, Dasilva; Leshabela, Tavares; McAteer (Hulme 58'), Suengchitthawon, Shade; Wakeling.
Subs not used: Odunze, Ewing.
Goal: Suengchitthawon 60'