With Manchester United and Chelsea slumping to home defeats the previous day and Tottenham Hotspur managing only a draw, City arrived at the Stadium of Light intending to make the chasing pack pay for dropping points.
Instead, they too were shocked as Ji Dong-won slotted home in the third minute of stoppage time to snatch the three points for the hosts after a frantic finale when City had desperately chased a winner of their own.
Television replays showed the South Korean was offside when Stephane Sessegnon played the ball to him but it was not flagged and he coolly rounded keeper Joe Hart with only 10 seconds to go.
"A team like us can't concede a goal on the counter-attack at the end," Mancini told Sky Sports after his side's second league defeat of the season.
"It was offside and we can't do anything about it." The result left City on 45 points from 19 games, ahead of second-placed United on goal difference and six points in front of third-placed Spurs who have played one game fewer.
The visitors made six changes from the side that drew 0-0 at West Bromwich Albion on Dec. 26, Mancini having an eye on Tuesday's match at home to Liverpool, and lacked a cutting edge in the first half as an overcrowded midfield stifled both teams.
City's best chance came shortly before halftime when Edin Dzeko skimmed the top of the bar. Earlier, Sunderland saw Hart rush forward to force Nicklas Bendtner wide when the forward was through on goal.
After a frustrating opening period, Mancini sought to introduce a creative spark by bringing forward Sergio Aguero on for defensive midfielder Nigel de Jong for the second half.
That change and the swap of playmaker David Silva for Samir Nasri 10 minutes later made City sharper going forward as they racked up several attempts on goal but Sunderland continued to thwart the high-flying visitors.
Sunderland should have scored midway through the second half when Sessegnon got the better of City captain Vincent Kompany on the edge of the box before sending his shot narrowly wide of the far post.
With the clock ticking down, City threw players forward and could have snatched it when Silva's shot was pushed by keeper Simon Mignolet into the path of Micah Richards whose header bounced on to the bar before being cleared.
Somehow Sunderland, who were depleted due to illness and injuries, kept the leaders at bay before embarking on a last-gasp counter-attack.
Sessegnon's through pass found substitute Ji who kept his nerve to slot the ball into an empty net with the last kick of the game.
The win lifted Sunderland to 13th place as their revival since Martin O'Neill took over as manager last month continued.
"We knew we were going to have to withstand ferocious pressure from Manchester City. We did it and we did it remarkably well," said O'Neill who took over with the club in 16th position.
In the day's other game, Victor Anichebe scored an 87th-minute winner as Everton beat West Brom 1-0 in a drab mid-table encounter at the Hawthorns.
