The Azzurri were frustrated for the most part in Palermo, wasting 32 attempts on goal, before Aleksandar Trajkovski’s stunning 92nd minute strike clinched victory for the visitors.
Italy’s defeat means they have missed two straight World Cups, having failed to qualify in 2018. All this despite winning Euro 2020.
Azzurri manager Roberto Mancini refused to be drawn on his future following the shock exit, with North Macedonia progressing to face Portugal in the final playoffs in Path C.
Just as the Euros was the most wonderful experience of my life, this was the biggest disappointment,” Mancini told reporters.
“We can say nothing, that is football, sometimes incredible things happen and it happened. We shouldnt have been here in the first place, but we did everything we could to win and its hard to even talk about it.
The victory at the Euros was absolutely deserved, we played great football. Then some of the fortune we had in that tournament turned into total and complete bad luck, as some unbelievable things happened from September onwards.
We dominated the group, all we needed was one of those moments to go well, but neither of them did. Tonight, it feels almost as if conceding a goal at the 92nd minute was fitting. This is a group of fine players and I am sorry for them.
Elsewhere in UEFA World Cup qualifying, Gareth Bale scored a double as Wales edged past Austria 2-1, to set up a decider with either Scotland or Ukraine.
Robin Quaison’s 110th minute goal got Sweden past Czech Republic 1-0, helping them through to the decider against Poland who had a walkover over Russia.