Julian Alvarez was judged to have touched the ball twice after stepping up to take his penalty in the shootout, and after the successful spot kick was cancelled it was left to Antonio Rudiger to win it for Real Madrid.
Real Madrid have squeezed through to a Champions League quarter-final tie with Arsenal after beating city rivals Atletico in a hugely controversial penalty shootout.
After an early goal from former Chelsea midfielder Conor Gallagher had levelled the scores on aggregate, former Manchester City forward Julian Alvarez fired home his kick, and Atletico's second, to make the score in the shootout 2-2, but he was judged to have touched the ball twice when VAR officials scrutinised his shot.
Kylian Mbappe, Jude Bellingham, Federico Valverde and Antonio Rudiger all scored for Real in the shootout, with the latter squeezing his effort beyond Jan Oblak to give his side the win.
Atletico had taken the lead on the night and levelled the tie on aggregate after just 27 seconds of the second leg thanks to goal from Gallagher, who set three records with one swing of his right foot.
Rodrigo De Paul's centre from the right was flicked on by Giuliano Simeone, and Gallagher came bursting in to fire the ball past Thibaut Courtois from close range and send the Wanda Metropolitano wild.
Gallagher's goal was the fastest ever scored by an Englishman in the Champions League, while it was also Atletico's fastest Champions League goal as well as the England international's first in European competition.
At the other end Vinicius Jr appealed for a penalty when he felt Simeone had handled in the box, but there was to be penalty pain for the Br azilian with 20 minutes of normal time remaining.
A swift Real Madrid move had seen Bellingham feed Mbappe, and the Frenchman cut inside two Atletico players before being felled by his compatriot Clement Lenglet.
Interestingly, Mbappe - who missed from the penalty spot against Liverpool in the league phase of the competition - left spot kick to Vinicius, but the Br azilian blazed hopelessly high and wide over the crossbar to the delight of the home fans.
Arsenal reached the quarter-final after following up their 7-1 first leg win over PSV Eindhoven in the Netherlands with a 2-2 draw at the Emirates Stadium, where Oleksandr Zinchenko and Declan Rice scored for Mikel Arteta's much-changed side.
The other quarter-finals will see Paris Saint-Germain face Aston Villa, Barcelona take on Borussia Dortmund and Bayern Munich face Inter Milan.