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Australia broke British hearts with a last-minute try to book their place in the Tri-Nations final.
Luke Rooney's second try clinched a dramatic 12-8 victory for the Kangaroos, who fought back from an 8-0 deficit.
Britain led through first-half tries from Martin Gleeson and Brian Carney, before Willie Mason and Rooney levelled it either side of the interval.
Both sides had several attempts at a winning drop goal before Australia created space for Rooney's winner.
The television match official was consulted but he adjudged the try to be good, continuing the trend of agonising British defeats to Australia.
Paul Sculthorpe had seen a drop goal attempt deflected under the crossbar, Sean Long was wide with another, Andy Farrell had one charged down and Kimmorley had hit the bar and sent another wide.
But the Australians continued to press and Rooney's fifth try in only his third Test, with 33 seconds left on the clock, snatched a thrilling win.
Great Britain started nervously - Long's first two kicks rebounding off his own players.
And Australia held sway in the opening minutes, Paul Wellens making a vital clearance from a Craig Gower grubber kick to prevent Matt Sing from scoring in the corner.
The Kangaroos had four unanswered sets but GB held out without conceding.
And the home team opened the scoring with a 70-yard break with 13 minutes on the clock.
Peacock broke through the Australian defence after a clever pass from Sculthorpe and burst forward before passing to Terry Newton.
The hooker in turn passed for Gleeson - playing his first match since June - to finish off a spectacular move, though skipper Farrell missed the conversion.
Australia continued to test the GB defence with a series of teasing grubber kicks and Wellens did particularly well to clear from Danny Buderus.
GB showed a real appetite for the match and tried to work clever angled passes as often as possible.
But clean breaks remained at a premium until a piece of brilliance from Carney after 33 minutes resulted in GB's second try.
The Irishman - back after a hamstring injury - capitalised on poor positional play from Gower and Andrew Ryan to burst through the Australian defensive line.
Carney ran 50 yards and evaded full-back Anthony Minichiello to touch down in the corner, though Farrell again missed the conversion.
It seemed as though GB would take their 8-0 advantage into the break but giant forward Mason scored in the final minute of the half.
The Canterbury Bulldogs prop burst through Sculthorpe and Gleeson's tackle 20 yards from the line.
Wellens tried to stop Mason on the line but the Australian had too much momentum, though Kimmorley again could not add the two points.
That timely score gave Australia the encouragement they clearly needed and Britain were fortunate not to concede again after 48 minutes.
Winger Matt Sing raced away to the line only for referee Glen Black to blow up early instead of playing advantage.
The introduction of Leeds try-scoring sensation Danny McGuire for his GB debut on the hour ought to have been the turning point.
But Britain could not halt the Australians' momentum and remained on the defensive for much of the final quarter.
Great Britain: Wellens, Carney, Gleeson, Senior, Reardon, Sculthorpe, Long, Fielden, Newton, Morley, Peacock, Farrell, Ellis. Replacements: Walker, Wild, Bailey, McGuire.
Australia: Minichiello, Rooney, Berrigan, Tonga, Sing, Gower, Kimmorley, Webcke, Buderus, Ryles, Ryan, Hindmarsh, Carroll. Replacements: Wing, Civoniceva, Mason, Timmins. Fulltime: Australia 12-8 Half time: Great Britain 8-4 Venue: City of Manchester Stadium
Referee: Glen Black (New Zealand)