Sean Goss, a guest player from Exeter City, had his spot-kick saved by Xavier Mous and the Dutch side converted all of their efforts with Quincy Menig bagging the decisive penalty.
The Reds weathered some early pressure with Kieran O'Hara pulling off one splendid save and went ahead after 23 minutes. A superb move saw skipper Joe Rothwell play the ball to Sam Byrne and continue his driving run into the box to get on the end of the Irishman's cross and tap home.
Moments later, a defensive slip allowed Byrne to show his pace and he raced clear before calmly finding the corner of the net with his left foot. Only the post denied Byrne a second goal from close range and it was to prove costly.
O'Hara misjudged a pass forward by Branco van der Boomen that jumped off the greasy surface and exposed the keeper to pull one back and spark inevitable late pressure. After the woodwork saved United, David van Bruggen forced the ball home inside a packed area with three minutes left to force the penalty shoot-out.
Highlights of the tournament will be screened by MUTV on 22 April.