Australia celebrate their victory
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Australia's women's hockey team gained revenge for their semi-final loss to England four years ago, beating them 3-0 to set up a final with India.
England started well and were unlucky not to go ahead, but fell behind to Kate Hollywood's 28th-minute strike.
Emily Halliday made it 2-0 from a short corner just after the break and Suzi Faulkner got a third with seconds left.
England now face NZ in the bronze medal play-off. Meanwhile, Scotland finished fifth after beating Malaysia 3-0.
Australia, known as the Hockeyroos, have scored 30 goals and conceded just two in their five matches.
England coach Danny Kerry said his team's inexperience had been a factor.
"We have five Under-21 players so it was not big deal losing to a side like Australia," he said.
"We could not take the chances that came our way."
England captain Kate Walsh said her team-mates had to swiftly turn their focus to Saturday's bronze play-off.
"The bronze medal match is massive," said Walsh after their 3-0 defeat to Australia in the semi-final.
"We've worked so hard and had so much support, we are not going to return home empty-handed.
"It was a really tough game, but I am pleased with the girls, they gave everything. I can't ask for any more."
They now play the Kiwis, who lost 1-0 to defending champions India in the other semi-final, on Saturday/Sunday (action from 2330-0430 GMT).