There was an element of deja vu in this one, as it is the second successive season that City have beaten the Foxes in the quarter-final stage, at the King Power, on penalties.
Story of the game
A vastly rotated City saw starts for youngsters, Arijanet Muric, Phil Foden, Oleksandr Zinchenko, Eric Garcia and Brahim Diaz as well as both Sergio Aguero and Kevin de Bruyne being handed a place in the starting 11 for the first time since injury.
Despite these changes, the Citizens dominated the majority of the opening stages.
De Bruyne got City off to a brilliant start, just 14 minutes in as the returning Belgian picked the ball up off Nicolas Otamendi, beat both Danny Simpson and Hamza Choudhury before steering the ball inside the near post - too much power for Danny Ward, who was left hopeless. Nothing less than the Mancunian's deserved.
Riyad Mahrez had a chance to make it two against his former club just moments later, as he got on the end of a deflected effort, although was unable to keep his shot down. City flying from the off.
The game did quieten down for the rest of the first-half, with chances few and far between, and possession even as the Foxes grew more into the game.
Straight after the break, Aguero had a brilliant chance to kill the game dead. Vicente Iborra gave the ball away cheaply to Mahrez, who slotted through Aguero, although City's captain for the night was unable to beat Ward, who got a solid palm on Aguero's strike to clear the danger.
As the game went on, and City struggled to create chances to put the game to bed, Guardiola sent on Raheem Sterling, adding more first-team quality in the hope of killing off the game.
Ten minutes later, the opposite of this occurred - Marc Albrighton smashing Leicester back into the game after getting on the end of a long-ball through. All level, and the Leicester cup dream was still alive!
Mahrez came close to killing his former sides' dream just moments later as he got on the end of Foden's pass and fired wide - a shake of the head from Guardiola who was growing frustrated with the chances his side had missed.
Into the last ten minutes, Leicester were looking to hang on for penalties, as City resiliently pushed forward in search of an equaliser. Gabriel Jesus appealed desperately for a penalty, although was turned away by both the referee and VAR.
Lee Mason blew for full-time - penalty kicks it was.
Christian Fuchs was the first to miss as he blazed over the bar on the Foxes second spot-kick before Sterling also chipped over the bar immediately following.
James Maddison made it three misses in a row, as his poor penalty was easily palmed wide by Muric, before the 'keeper got up and saved the next effort from Caglar Soyuncu.
Zinchenko's confidently planted his effort into the top corner to send City through and break Leicester hearts for the second successive season, on penalties, in a quarter-final.
Takeaways from the match
Despite defeat to City for the second successive time in the Carabao Cup, Leicester do have one huge positive they can take from the encounter - the performance of Choudhury.
The young centre-back dealt well with Aguero throughout, and should he perform like this on a consistent basis, he should expect more regular starts.
With the likes of Wes Morgan possibly approaching their sell-by date, Choudhury could offer a long-term replacement to partner Harry Maguire at the heart of the Foxes defence.
Brilliant de Bruyne
De Bruyne's season thus far has been injury hit, with the Belgian in and out of the squad, unable to make any real impact. Although, tonight he dominated on his first start since returning, before big substituted and kept fresh with the score at 0-1.
His goal showcased immense skill, both in control of the ball and in the finish, leaving the Leicester defence hopeless.
The midfielder ran the game, and even despite his goal, would've been a strong contender for man of the match.
Liverpool should now be fearful as if de Bruyne can return to his brilliant best on a consistent basis, it is only going to make the title favourites even stronger, and possibly prove the difference in the title race.
It's still very, very early on in the season, although talk about Guardiola's side completing a quadruple is already underway, a testament to just how strong this City team is.
The Blues will fancy their chances of progressing through to the final, as they're able to beat anyone over a two-legged semi-final, and at a neutral venue will always be favourites domestically with the squad that they currently have.
This competition may not be the most important to Guardiola, although could prove the start of something special this season.
The Citizens eyes will now switch to tomorrow nights games, followed by the semi-final draw, as the champions of England remain favourites to get their hands on the trophy for a second successive season.