Papatoetoe opened the scoring just before halftime through Gurjeet Singh but the home side battled hard and drew level just before fulltime through a William McClure penalty, which he slotted at the second attempt after a retake was ordered.
Manukau's fortunes seemed to falter when Mohammed Imraz Shah was sent off in the first period of extra time but they kept the scores level to send the game to a penalty shootout.
Despite missing their first attempt, Manukau held their nerve better than Papatoetoe who missed the target twice to hand their South Auckland neighbours an upset win.
Fellow underdogs Stop Out didn't fare as well in Wellington with Miramar Rangers bulldozing their way to a 4-0 win at Wakefield Park with Michael Fifii and Sam Mason-Smith each grabbing a double.
Both Dunedin teams in the round of 16 progressed into Monday's open national draw for the quarter-finals with Alistair Rickerby's first half goal the difference for Dunedin Technical against Christchurch's Western.
Caversham joined their cross-city rivals in the next round with a 4-2 victory over Cashmere Technical with Tim Cook and Tom Jackson each netting twice as the home side raced to a 4-0 lead before a late own goal and an even later Ken Yamamoto header restoring respectability.
Lower Hutt City put paid to last year's beaten finalists Napier City Rovers at Fraser Park on Saturday with second half goals to Tobias Bertsch and Hamish Watson securing a 2-0 win while Eastern Suburbs and Central United bucked the trend of home wins with close victories.
In Auckland, Central United were 3-0 up at halftime thanks to two goals from Emiliano Tade and a Jason Hicks penalty but fought off a late fightback from Three Kings United - Luiz Del Monte and Jarod Colligan scoring within three minutes midway in the second half - before securing a 3-2 win, and Eastern Suburbs returned from Hamilton with a 1-0 win thanks to George Slefendorfas' 50th minute goal.