Australia scored 117 for 7 in their 20 overs, falling 33 runs short of their winning target against Pakistan in the Super Eight stage match on Tuesday.
Despite the result, Australia ensured their spot in the semis by scoring the 112 runs required for it, with Michael Hussey (54 off 47 balls) being the lone warrior for his side at the R Premadasa Stadium in Colombo.
Saeed Ajmal went through the defences of Mathew Wade (13), moments before trapping Pat Cummins (0) leg before to end with figures of 3 for 17.
Cameron White (12) was sent packing by Mohammad Hafeez for a catch to Imran Nazir, while Glenn Maxwell was dismissed moments later to leave them reeling at 65 for 5.
Aussie openers, Shane Watson (8) and David Warner (8), were both trapped leg before by Hasan Raza and Hafeez respectively early in their chase. Skipper George Bailey (15) was taken out by Ajmal in the same fashion.
Ajmal bagged three wickets, while Hafeez and Raza took two wickets each.
The result also dismissed South Africa's chances to progress in the tournament.
To deny Pakistan their place, India will need to beat the South Africans by a huge margin to boost their Net Run Rate past their arch-rivals.
Earlier, Pakistan put up 149 for 6 in their 20 overs.
Umar Akmal (9) and Shoaib Malik (4) saw the team through to the total.
Shahid Afridi (4) was dismissed clean bowled off Mitchell Starc while, Abdur Razzak (27) mistimed a Pat Cummins delivery for an easy catch to Shane Watson at backward point.
Back to back wickets saw Kamran Akmal (32) and Nasir Jamshed (55 off 46) back to the pavilion. Akmal went back for a catch to Cameron White at extra cover off Stark, while Akmal was taken out by Xavier Doherty for a catch to David Warner at long on.
The third wicket stand between Nasir and Kamran Akmal was worth 79 runs. Jamshed whacked four boundaries and two sixes.
Opener Mohammed Hafeez (4) was trapped in front of the stumps by Starc, while the other opener Imran Nazir (14) was taken out by a Watson full toss for a catch to George Bailey at mid-off.
Stark claimed three wickets while Doherty, Watson and Cummins bagged a wicket each.
