After first-placed Auckland's defeat to Melbourne City earlier in the round, the door was left ajar for the Sky Blues to take top spot with a victory over the Phoenix.
But Ufuk Talay's men failed to fire in their first outing at Allianz Stadium this season, with goals either side of halftime giving Wellington the victory.
"I don't think we need to make that challenge in that area," Talay said.
"It doesn't matter if we win the ball or not, we were 60 metres away from goal.
"I think he (Youlley) is a smart player and a switched on player, and he'll definitely learn from this moment."
Carlo Armiento scored from a first-half free-kick before Isaac Hughes doubled the Phoenix's lead in the 63rd minute when he glanced a header past Harrison Devenish-Meares.
Youlley's dismissal did not help Sydney's cause after the young midfielder crunched the ankle of Wellington winger Ramy Najjarine with his studs showing.
The 20-year-old was shown a straight red by referee Sam Kelly in the 43rd minute and will miss next week's clash with Melbourne Victory and possibly the Sydney derby.
There had been warning signs long before then that tensions were escalating, which both Talay and Wellington counterpart Giancarlo Italiano noted in their post-match press conferences.
"I felt there were some fouls for both sides that could have been pulled up and made an example of and maybe that challenge doesn't happen later on," Italiano said.
Armiento's goal had come as a result of a particularly nasty Tiago Quintal challenge on Alex Rufer just outside the Sydney box.
Quintal escaped with just a yellow but Armiento still made the young winger pay when his free-kick deflected off Alex Grant and past Devenish-Meares.
The animosity only intensified as halftime drew near when Youlley scythed down Najjarine.
His tackle sparked fury between both benches with Talay shown a yellow card as he protested the decision.
Talay left no stone unturned in trying to claw back his side's 1-0 deficit after halftime.
Teenage substitute Akol Akon and fullback Ben Garrucio had chances to drag Sydney back into the game but neither could land the killer blow.
The Phoenix had no such issues with Rufer given ample time and space to cross for Hughes, who grabbed his second goal in as many weeks.
17°C