England produced a rousing second-half performance at Twickenham but it was not enough to overhaul Tri Nations champions New Zealand.
The All Blacks, who had not lost to England since 2003, stormed into a 14-0 after 20 minutes with tries from Hosea Gear and Kieran Read and they led 17-3 at the interval.
England, on the back of a powerful scrummaging performance, hit back in the second half and engineered a debut Test try for Dylan Hartley.
New Zealand finished the match firmly on the back foot and with Jerome Kaino in the sin-bin but they succeeded in holding England at bay with Dan Carter booting 16 points.
England made one change from their 21-20 victory over Australia in the summer, with Andrew Sheridan returning at loose-head prop after shoulder surgery kept him for the majority of last season.
The All Blacks, who had a 15-Test unbeaten run ended by the Wallabies in Hong Kong last weekend, handed a Test debut to the former Kiwi rugby league star Sonny Bill Williams.
England's defence coach Mike Ford had warned the All Blacks this during the week that his side were interested only in slamming down the shutters and engaging New Zealand in a ferocious arm-wrestle of a contest.
Ford had claimed the Tri Nations, which New Zealand won without losing a game, was not proper Test rugby and that England would give them an "old fashioned" contest.
Sheridan played his part as England dominated the All Blacks scrum but the visitors had warned Ford they had "more than one bullet in the gun". And so it proved.
New Zealand looked to move the ball wide at every opportunity and England received a let-off when Mils Muliaina brushed the touchline as he danced around Ashton.
Carter, who averages nearly 19 points a game against England, missed a penalty shot but England could not stem the tide forever and conceded two tries in the space of four minutes.
Inevitably the first was created by Williams. The debutant centre drew two men in midfield before offloading one-handed to Kaino, the marauding flanker who charged deep into the England half before finding Gear.
Chris Ashton did his best to bundle the All Blacks wing into touch but the try was awarded by Italian video referee Giulio De Santis and Carter converted from the touchline.
Carter carved England open straight from the restart and Ashton had to retreat to collect Gear's chip and concede a five-metre scrum.
England halted Gear's run on the crash ball but Read drove over the line by the posts and Carter's simple conversion opened the All Blacks a 14-0 lead.
Flood nudged England onto the scoreboard and the Red Rose pack then began to turn the screw, with Sheridan and Dan Cole putting the the All Black scrum under pressure to win a penalty.
Flood kicked for the corner, England secured the lineout and laid siege on the All Blacks line but they could not hammer their way through the resilient New Zealand defence.
The All Blacks recovered possession and when England captain Lewis Moody was spotted hitting a ruck from the side, Carter slotted the penalty to extend the All Blacks' lead.
After taking a hammering for the best part of 35 minutes, England finished the first half promisingly although ultimately they had nothing to show for it.
England's powerful pack earned another but Flood missed a relatively simple shot from 35 metres out and Mike Tindall wasted an overlap with a fluffed a pass.
Ben Foden sparked another attack and regained the ball after a Sheridan drive but, with the final play of the half, he was held up over the line.
England's dominance of New Zealand's scrum grew in the second half and Flood slotted a second penalty but Carter responded immediately after Thompson had been penalised for hands in the ruck.
Hartley came on for Thompson and the dynamic Rotorua-born hooker made an immediate impact, scoring his first Test try to bring England back into the game just before the hour.
Williams had launched another All Blacks attack with a one-handed off-load but Ashton claimed Muliaina's chip forward and sparked an England counter-attack.
Mike Tindall took the ball on and Foden slipped the pass to Flood, who stabbed a grubber kick in behind the New Zealand defence for Ashton to chase.
The England wing appeared to be off-side but he was allowed to regather and Hartley came barrelling through to claim a short pass from Flood and stretch for the line.
England had a real momentum but kept shooting themselves in the foot, allowing Carter to strike two penalties either side of one from Flood that kept the All Blacks two scores clear.
Delon Armitage conceded the second for a careless high tackle moments after coming on for Cueto and Hartley was fortunate not to see yellow for a swinging arm.
England spent the last 15 minutes camped in New Zealand territory and Kaino was sin-binned as the pressure began to tell.
Easter charged forward and England spread play wide left to Hape, who dived for the line but spilled the ball under pressure from Isaia Toeava.