With both teams tied at 174 after the end of their innings, the result was decided with the help of a Super over.
Sri Lanka batsmen Mahela Jayawardene, Thisara Perera and Tillakaratne Dilshan scored 14 for one in the Super Over before paceman Lasith Malinga restricted New Zealand's challenege to six for one, accounting for Martin Guptill's wicket on the fifth delivery.
The thrilling climax followed an equally dramatic run-chase by Sri Lanka as they replied to New Zealand's 174 for seven with opener Tillakaratne Dilshan's blitzkreig at the top and his 80-run opening-wicket partnership with skipper Jayawardene at the Pallekele International Cricket Stadium.
Sri Lanka required 28 from three overs, 21 from two and 8 runs in the last over, bowled by Tim Southee.
In the last over, Southee conceded just three runs off his first four deliveries to make the equation 5 required from two balls.
Lahiru Thirimanne tied the score with a four over short long leg and put his side in charge.
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With one needed off the last ball, Thirimanne managed an inside edge and ran towards the non-striker's end. James Franklin targeted the non-striker's end where New Zealand skipper Ross Taylor was stationed.
Taylor dropped the ball which ricocheted off his hand and dislodged the bail, prompting the umpire to refer the decision to the third umpire.
TV replays showed that the ball deflected off Taylor's hand and fell onto the stump, resulting in scores being tied.
The match provided complete entertainment to a sell-out crowd, who were left on the edges of their seat as both the teams fought for supremacy.