Ashley Young and Ashley Cole were the men to fail from the spot — with Alessandro Diamanti slotting home the crucial kick for a 4-2 shootout victory.
Roy Hodgson's men can have few complaints, with flashes of attacking intent in the first half making way for a nervy display that took this goalless Kiev clash all the way.
Italy were dominant, hitting the woodwork twice and seeing the ball in the back of the net in extra-time — only for Antonio Nocerino's header to be correctly ruled offside.
Andrea Pirlo ran the show for the full 120 minutes, while England's Premier League stars failing to show the form that got them out of the group stage.
England boss Hodgson went for an unchanged side while Mario Balotelli was recalled to the Italian starting line-up in place of Antonio Di Natale.
And it was the 2006 World Cup-winners that produced the first moment for the highlights reel as Daniele de Rossi saw a swerving shot from outside the box crashing against Joe Hart's post.
England retaliated and almost scored themselves two minutes later, Glen Johnson starting the move and then powering into the box to get on the end of James Milner’s low centre.
The Liverpool defender got the ball tangled up under his feet and Italian keeper Gianluigi Buffon was able to save one-handed away to his left.
England were looking threatening and Wayne Rooney, under pressure from Claudio Marchisio, headed over the bar from a teasing Johnson centre.
Italy started to dominate possession, with Pirlo’s floated pass over the England defence seized on by Balotelli.
But John Terry made good ground to block his attempted chip and Hart was able to gather the ball.
Another dangerous pass from Riccardo Montolivo found Balotelli but he failed to make full contact on his volley and Hart saved comfortably.
England gave a reminder that they could still pose a threat when Welbeck exchanged passes with Rooney before firing wide with the goal at his mercy.
Marchisio knocked the ball back into the box and De Rossi was completely unmarked six yards out — but dragged his shot wide.
Terry got a crucial flick on a cross from Ignazio Abate destined for the head of Balotelli.
Hart then made a double save to deny Cassano and the follow-up effort from Balotelli but was relieved to see Montolivo fire over from the loose ball.
Balotelli held off the challenge of Terry to fire an overhead kick over the bar.
Hodgson made a double change after an hour with Danny Welbeck and James Milner making way for Andy Carroll and Theo Walcott.
And the Liverpool striker made his presence felt when challenging for a Walcott centre, and the ball dropping to Young whose shot was deflected wide.
Italy swapped Cassano for former West Ham winger Alessandro Diamanti on 78 minutes, with Antonio Nocerino replacing De Rossi soon after.
Barzagli became the first player to be yellow carded after 82 minutes for an over-the-top challenge on Young.
Johnson blocked a close-range effort from Nocerino in the final minute while Rooney came agonisingly close when his overhead kick flew over.
There was time for Christian Maggio to replace Abate before the game went into extra-time.
Hodgson made his final change a minute later with Parker replaced by Jordan Henderson.
Hart was relieved when Diamanti’s curling attempt hit the base of a post.
The pace of the game had understandably dropped but Italy continued to do most of the pressing.
Diamanti held his head in his hands after shooting wide from Federico Balzaretti’s cross.
Nocerino had the ball in the net with five minutes left but was a yard offside and the game went to penalties.
It was Italy who triumphed 4-2 on penalties despite Riccardo Montolivo being the first player to miss when he shot wide.
Young hit the bar and Cole’s spot-kick was saved by Buffon before Diamanti converted the winning penalty.
England: Hart, Johnson, Terry, Lescott, Cole, Milner (Walcott 61), Gerrard, Parker (Henderson 94), Young, Rooney, Welbeck (Carroll 60). Subs Not Used: Green, Kelly, Baines, Jones, Jagielka, Downing, Oxlade-Chamberlain, Defoe, Butland.
Italy: Buffon, Abate (Maggio 90), Barzagli, Bonucci, Balzaretti, Pirlo, Marchisio, De Rossi (Nocerino 80), Montolivo, Balotelli, Cassano (Diamanti 78). Subs Not Used: Sirigu, Chiellini, Ogbonna, Thiago Motta, Di Natale, Giaccherini, Borini, Giovinco, De Sanctis.
Booked: Barzagli, Maggio.
Italy win 4-2 on penalties
Att: 56,500
Ref: Pedro Proenca (Portugal).
http://www.thesun.co.uk/sol/homepage/sp ... tures.html
