Top-ranked England lost for the second time when Sri Lanka secured a stunning 20-run victory at Headingley.
England had been aiming to retake the lead in the World Cup standings with a win and appeared to be on track after restricting Sri Lanka to 232-9.
But Lasith Malinga took four top-order wickets and Dhananjaya de Silva snared three in nine balls as England was bowled out for 212.