Aiming to build on a run of four games unbeaten across all competitions, the young Foxes headed to The Nigel Doughty Academy in good form, but were behind just three minutes in.
Forest defender Kamai Kenton opened the scoring and it was a lead the hosts quickly doubled through Boyd Bowman after a quarter of an hour.
Kanye Bradshaw scored from the spot with 20 minutes remaining to ensure victory for the home side.
Sitting 14th in the table, on four points from the opening seven fixtures, attention turns back to the U18 Premier League Cup this Saturday, hosting Everton at LCFC Training Ground (12pm GMT kick-off).
The details
City: Hibbins, Simons (c), Jacklin, Govan, Lawrence, Swan (Nkekeh 56'), Szembell, Aideed (Irene 45'), Anugo (Machaka 45'), Owusu (Muskwe 72'), Fletcher (Westwood 72').
Subs not used: Lawrence, Chezy.