With scores locked at 1-1 after a chaotic 90 minutes and extra-time, City skipper Rebekah Stott had the chance to seal victory at 4-4 in the penalty shootout, in front of a hostile crowd at the Wuhan Sports Center Stadium.
Instead, she shot tamely straight at Wuhan goalkeeper Chen Chen.
Zhao Yuxin put Wuhan in front and Chen saved Bryleeh Henry's penalty to seal a remarkable shootout victory 5-4.
The defeat costs City $2 million in prize money, and players had been in line to receive around $47,000 each.
Instead the players each claim around $23,000 as runners up, with the club's prize money approximately $1.25 million.
"It's gutting to lose like that," Stott said.
"I think we played well. We dominated the game. We should have come away with the win, but football is like that sometimes.
"It's disappointing. We're gutted."
City had high hopes of a treble after claiming the A-League Women premiership in an unbeaten regular season, but lost to Central Coast in the semi-finals, then came up short on Saturday night.
They have qualified for next season's Champions League through winning the premiership.
"It's been unbelievable to be able to compete in this," Stott said.
"We've loved every minute of it.
"Obviously it hurts now, but to be a part of this competition has been so game changing for us and for women's football it's really important."
City were unable to crack open Wuhan in the opening 45 minutes, though Malena Mieres made an incredible fingertip save to deny Wang Shuang a cracking long range goal with the final kick of the half.
Three days after scoring a 94th-minute semi-final winner over Incheon Red Angels, 17-year-old Shelby McMahon's headed home a wonderful free kick from Leticia McKenna in the 76th minute to put City in front.
Henry thought she'd made it 2-0 in injury time but the goal was chalked off via VAR for a foul she had committed in the build-up.
From the subsequent free kick, Mariana Speckmaier was penalised for handball - after a header ricocheted into her arm - via a VAR review and Wang Shuang equalised from the spot in the 98th minute.
City had two late chances to win the game in extra-time, while Stott was lucky not to be penalised for a handball in the 103rd minute.
McKenna dragged a shot wide in the 116th minute while Leah Davidson was unable to meet Mariana Speckmaier's wonderful squaring ball in the 121st minute and the game went to spot kicks.
"Once it went into extra-time, it got quite hectic, and not a lot of football was played," Stott said.
"I think we still could have got a goal. But it wasn't meant to be."
The brilliant Mieres' save from Song Duan at 3-3 put City in charge of the shootout, but they could not seal the deal.
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