The Australians looked headed for a famous victory at Marvel Stadium on Thursday night after they scrapped their way back from 18 points down, but All Blacks fullback Jordie Barrett scored in the corner after the fulltime hooter to snatch the win.
The Wallabies took the lead 37-34 in the 77th minute after Nic White nailed a 55-metre penalty.
The visitors had a chance to level but instead opted for a five metre line-out to try to win the game but the Wallabies forced a penalty.
However, French referee Mathieu Raynal controversially turned the penalty for time-wasting, saying Bernard Foley didn't play on as instructed.
In the ensuing play, the All Blacks found their man in Barrett, who touched down in the 81st minute to leave the Wallabies shattered.
Wallabies coach Dave Rennie said he'd never seen such a decision at any level of the game.
He spoke with a devastated Foley post match, with the five-eighth under the impression that the clock had stopped.
"It's incredibly disappointing way to finish because down 31-13, 13 players, we showed a huge amount of character to come back into their game and then get our nose in front," Rennie said.
"To lose it in that fashion ... the boys are in the change-room and they're hurting."
All Blacks coach Ian Foster had little sympathy for the Australians, saying the referee was clear in his judgement.
"It was very clear cut - they were delaying the kick and he warned them," the coach said.
"I understand there's a bit of contentious nature about it, but it was very clear cut from our position."
There was plenty to like about the Wallabies with fullback Andrew Kellaway scoring two tries while Rennie described Foley's performance as "sensational" in his first Test in three years.
"He controlled the game really well and his goal-kicking was exceptional," Rennie said of Foley.
"He's very confident, he gives a lot of confidence to people around them so I thought he had a big game."
Flanker Pete Samu was a stand-out in his first start of the year, while No.8 Rob Valetini also stood up.
The teams were locked at 10-10 at halftime after a hectic half that saw the All Blacks lose three players, including skipper Sam Cane to injury, while the Wallabies were forced to play with 13 men after both Darcy Swain and Tom Wright were yellow-carded at the same time.
Swain was sent to the sidelines in the 36th minute for an ugly tackle on the leg of Quinn Tupaea, with the reserve back assisted from the field with a suspected ACL injury.
Wright was given his card for a professional foul trying to stop a break by All Blacks winger Caleb Clarke.
The home side got off to the worst possible start with a series of errors leaving them down 10-0 after 12 minutes, including a try by barnstorming hooker Samisoni Taukei'aho.
It looked like the Wallabies were on the scoreboard in the 20th minute but Kellaway missed grounding the ball for his first try by centimetres.
Valetini made no mistake five minutes later when he barrelled over the line with Foley converting for a 10-10 scoreline.
Early in the second half New Zealand took advantage of another Wallabies yellow card with Richie Mo'unga and Will Jordan both crossing to push the lead out to 31-13.
But Kellaway got his side back in the game with two tries while Samu touched down in the 73rd minute, with Foley adding the extras from the sideline to send the match into a thrilling finale.
The loss means the Wallabies also crashed of the race for the Rugby Championship with New Zealand remaining on top.
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