In front of a crowd of 51,692 at St James' Park, the Premier League champions dominated possession in the first half but Newcastle soaked up the pressure and came out fighting after the break on Wednesday night. Sweden international Isak fired in at the far post off a cross from Joelinton in the 53rd for the 1-0 victory.
It was the Magpies first win over City in any competition in 11 attempts, and for manager Eddie Howe it was a first success in 14 attempts against Pep Guardiola.
"Yes, my record against him isn't good, so it's nice to win, but most importantly it's not about that it's about trying to progress in the competition and I'm delighted with the players, delighted with the efforts that they gave," Howe said.
It was the third year in a row that City, winners four times in a row from 2018 to 2021, had gone out of the competition early.
Asked if he was disappointed that his side could no longer win a quadruple to go with last season's treble, a bemused Guardiola said: "You think the target was to win the quadruple? Honestly, it's not.
"We competed really well and we are more than satisfied to win the treble. Our expectations are high, but not high enough to not be satisfied with that."
Newcastle's reward in the fourth-round draw made 30 minutes after the final whistle is a trip to Manchester to face United in a rematch of last season's final won by Erik ten Hag's side.
High-flying Brighton & Hove Albion also went out, beaten 1-0 at struggling Chelsea, while Aston Villa and Brentford both lost at home to their top flight opponents.
Everton reversed a 4-0 loss in the Premier League last month to take a 2-1 win at Villa Park, while the Gunners won their latest London derby 1-0 thanks to Reiss Nelson's goal in the eighth minute.
Nine-time winners Liverpool beat Leicester City 3-1 at Anfield after going a goal down to the second-tier leaders with just three minutes gone.
It would be Leicester's only shot on target as the Reds rallied with 29 goal attempts, 10 of them on target.
Cody Gakpo scored in the 48th minute to cancel out Kasey McAteer's opener and Dominik Szoboszlai fired home a thunderous drive to make it 2-1 in the 70th, five minutes after coming on, and Diogo Jota grabbed the third in the 89th.
Out-of-favour Socceroos defender Harry Souttar played a full game for the beaten Foxes for his first minutes of a frustrating season.
Elsewhere, Fulham won 2-1 at home to second-tier Norwich City, while Premier League Bournemouth beat Championship side Stoke City 2-0 with two second-half goals in three minutes from substitutes Dominic Solanke and Joe Rothwell.
West Ham United won 1-0 at League One Lincoln City and Blackburn Rovers thrashed Championship rivals Cardiff City 5-2 in the highest scoring match of the night.
ROUND FOUR DRAW:
Manchester United v Newcastle United
Bournemouth v Liverpool
Chelsea v Blackburn Rovers
West Ham United v Arsenal
Everton v Burnley
Exeter City v Middlesbrough
Mansfield Town v Port Vale
Ipswich Town v Fulham
Ties to be played week commencing October 30.
With AP & PA.
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