
Russell Martin’s men had plenty of chances in both halves to get a result at Broadhall Way but were punished for their lack of conviction inside the box.
Former Foxes man Wanya Marcal scored the opener just months after being released by the club before Oliver Sanderson headed the hosts’ second just after the break.
Emil Riis came off the bench to pull a goal back for Leicester but Harry Souttar and Will Alves spurned chances to complete the comeback.
The defeat means City missed their chance to all-but-confirm their spot in the knockout stages and will need to beat League Two’s Walsall next month to qualify.
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Leicester had two decent chances to make their possession pay in the opening 20 minutes, with Kamari Doyle failing to get his two efforts on target inside the area.
Martin's men failed to make the most of their good start and found themselves behind with Stevenage's first real threat on goal. Sammy Braybrooke failed to deal with a long ball and fellow academy star Marcal, who left the club in the summer, curled a strike into the corner of the net.
The Foxes nearly responded within minutes with another chance for Doyle. A clinical counter-attack saw Admir Bristric slip the ball to Doyle, who saw his strike deflected away from goal.
Luke Thomas was introduced at half-time with Bade Aluko coming off after appearing to land on his shoulder awkwardly in the first half. City had two quick opportunities after the break to equalise with Riley Carr forcing distress among the home defence.
However, Stevenage doubled their lead just before the hour when striker Sanderson got in front of Braybrooke from a corner and glanced the ball into the net.
City pulled a goal back just 10 minutes later with Riis smashing the ball past goalkeeper Dan Barden after Harry Souttar's threaded ball in-behind.
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To get it, it's a simple one-two punch.
Franco Ravizzoli
Too slow when getting the ball back for goal kicks which allowed the home side to regroup. It was something that Martin repeatedly shouted at him to do. When he had the ball in play, he didn't help his teammates. 5
Took far too long to get the ball out of his feet throughout the game. His speed and recovery pace got him out of jail a number of times, with him getting forward more in the second half. 5
Threaded the ball through the channels so well at times, creating a chance for Riis on one occasion. Won his duels and kept the pressure. Nearly equalised at the back post but put his header wide. 6
Played some great balls down the right channel for Carr to race on to. Did relatively OK at centre-back before coming off at half-time. He did fall on his shoulder at some point. 6
Christian McFarlane
Carried ball well but took too long to decide what to do with it. Much better after the break and worked incredibly well with Alves down the left when City looked to pull level. 6
Impressive first start for City in midfield. Floated through the thirds with ease and held his own when pressed in tight areas. Was substituted off after Stevenage's second for Reid. 7
Sammy Braybrooke
So poor for Marcal's goal by letting the ball bounce and Baren was his man for the second goal. On the ball, he was as you'd expect him to be with good passing and dribbling. 5
Started the game so promisingly and in the first half could have had a hat-trick. Missed a great chance at 2-0 and conceded possession too easily at times. Always looked to get on the ball and create something. 6
Made his senior debut for the Foxes and was an exciting watch. Ran with pace and confidence down the right and was a nightmare for the full-back. A very good debut. 7
Felt more like a performance at Barnsley than the one against Fulham Under-21s. Looked quite dangerous early on but had a couple of tame efforts that lacked quality. Did not see much action after the break. 5
Dropping deep throughout but was often bypassed. Didn't get much of a sniff in front of goal and was replaced after City went 2-0 down. 6
Nothing special but did everything needed at centre-back for City. Kept moving the ball forward when they needed to get a goal. 6
Great finish from a tight angle to make it three for him in blue. Didn't get another opportunity but a bigger threat up front. 7
Good run from left to centre and effort on goal. Tried and tried but didn't do enough to get a goal. 6
Bobby De Cordova-Reid
Didn't make too much of a difference when he came off and blasted the ball wide with little conviction. 6
Teasing performance down the right, mixed it up by going wide and inside. His crosses, though, weren't met by anyone.