New Zealand claimed the prize scalp of Andrew Flintoff as England's victory bid at the Adelaide Oval was knocked off course.
Captain Flintoff fell for just nine as his side slipped to 92 for five in the 29th over.
The top order were blitzed by James Franklin to leave the latest Commonwealth Bank Series contest in the balance.
Left-armer Franklin claimed three wickets in as many overs as England, chasing a 211-run target on a slow surface, struggled to pierce the infield.
They were fortunate not to lose Mal Loye when umpire Daryl Harper turned down confident appeals for caught behind off Franklin.
Although Loye's bat jammed into the ground in attempting to force the ball away, television technology highlighted a clear nick from an attempted drive.
Loye had only doubled his score to eight, however, when another edge found the hands of Stephen Fleming at first slip.
Another Fleming grab, low down, accounted for Ian Bell and left England 31 for three in the 11th.
Out-of-form opener Andrew Strauss failed once again, twice finding the boundary off Franklin, in the ninth over, before succumbing leg before.
A rearguard action between Paul Collingwood and Ed Joyce - the latter pulling a handful of fours in the process - appeared to have stabilised England before Daniel Vettori's spell rocked them again.
Collingwood was out lbw, aiming a sweep at a quicker ball, while Flintoff followed when he charged down the pitch and edged behind for wicketkeeper Brendon McCullum to complete a bobbling catch.
English hopes were left firmly in the hands of Irishman Joyce, who cruised past his previous best score of 13 to move into the 40s.
Earlier, after Fleming won the toss, opposite number Flintoff claimed a four-wicket haul to restrict New Zealand to 210. Flintoff regularly clocked speeds in excess of 90 miles per hour in a hostile first spell of 6-2-9-1 and cleaned up the tail at the death to finish with four for 21.
It took a career-best 86 from Jacob Oram, returning after a hamstring injury, to rescue New Zealand from a perilous position in mid-innings.
It was a stand of 120, in tandem with McCullum, which realigned the Black Caps' quest for a competitive score, after they struggled to 67 for five in the 24th over.