Richard Hughes' goal took Portsmouth through to an FA Cup quarter-final with Arsenal as Liverpool were again left rueing missed chances.
Substitute Hughes tucked home a left-foot shot from 14 yards to end Liverpool's hopes.
Shaka Hislop was Pompey's hero, saving Michael Owen's controversial second half penalty.
Hislop reproduced his form of the first game at Anfield to keep Liverpool at bay with a string of fine saves.
Recalled Liverpool keeer Chris Kirkland proved equal to an early test, clinging on at the foot of the post to Eyal Berkovic's driven free-kick.
Arjan De Zeeuw had to step in alertly to stop Steven Gerrard bursting through as as Liverpool fashioned their first potent attack on seven minutes.
The early exchanges were cagey, although Matthew Taylor got forward to supply a 15th minute cross which Jamie Carragher just won as Kevin Harper lined up a header.
47 mins: Ref Messias overturns penalty decision for handball
61 mins: Messias awards controversial penalty
62 mins: After long delay, Owen's weak kick saved by Hislop
71mins: Hughes puts Pompey ahead
Bruno Cheyrou then had Hislop backpedalling to desperately claw away a cross from under his bar and then Hislop showed clean hands to hang on to Gerrard's free-kick.
Gerrard was beginning to exert an influence as Liverpool patiently sought an opening but Pompey's cause was helped by Liverpool's reluctance to commit men forward.
The Liverpool captain opened Pompey up on 37 minutes with an electric burst of pace before laying the perfect ball in to Emile Heskey's path but the England striker was unable to clip his shot over the advancing Hislop.
In first half injury time Owen gave chase to a long ball and squirmed away from Linvoy Primus in the Pompey penalty area, only to find Petri Pasanen on hand to halt his progress.
Both sides made half time changes, with Milan Baros replacing Heskey and Pompey replacing Dejan Stefanovic with Richard Hughes.
Referee Matt Messias was involved in double controversy, first pulling play back for a Liverpool free-kick when Baros was shaping to shoot.
From the resulting free-kick he pointed to the penalty spot for handball, only to correctly reverse his decision when his assistant signalled a clear handball by Baros.
The incident sparked the game into life and Kirkland was forced to plunge at Yakubu's feet.
Referee Messias was involvled in more controversy on 61 minutes when he pointed to the spot again when Baros went down under Taylor's challenge although he appeared to play the ball.
But Owen's spot-kick lacked any conviction and Hislop made a comfortable save.
From out of nothing on 72 minutes, Portsmouth took the lead.
Sami Hyypia lost possession to Berkovic and the ball was worked along the face of the 18-yard box via Yakubu to Hughes who buried his shot from 14 yards.
Hislop denied Gerrard an instant reply by tipping the Liverpool skipper's powerful header over the bar.
Portsmouth had some desperate defending to do as Liverpool poured forward for an equaliser but Yakubu had the best chance to make the game safe for Portsmouth.
Portsmouth: Hislop, Primus, Pasanen, De Zeeuw,
Stefanovic (Hughes 45), Harper, Smertin, Quashie, Taylor,
Subs Not Used: Wapenaar, O'Neil, Olszar, Cooper.
Booked: Quashie, Hughes, Smertin, Yakubu.
Liverpool: Kirkland, Finnan, Henchoz, Hyypia, Carragher,
Hamann, Gerrard, Le Tallec (Murphy 59),
Cheyrou (Sinama Pongolle 82), Heskey (Baros 45), Owen.
Subs Not Used: Dudek, Biscan.
Referee: M Messias (N Yorkshire).