Following the Premier League 2 win over Swansea City on Monday, City's line-up included four changes, the headline of which was a maiden outing for Louis Ramsay after joining the Club this summer.
However, despite periods of promising play from the hosts, it was the Royals who emerged with all three points in Group B with Ethan Coleman and Ben House netting either side of half-time.
City came out in an adventurous mood with a succession of early opportunities as Conor Tee fired just wide before Ryan Loft’s header floated over the bar in Whetstone.
It was Reading who took the lead, though, as Coleman leapt highest in the Foxes box to glance a header beyond Viktor Johansson in the 26th minute.
The hosts could have equalised just before the break when Josh Knight forced his way into the Reading penalty area, but visiting captain Gabriel Osho was able to deflect it wide.
With seconds to go until the interval, Johansson’s goalkeeping talents were called upon to keep the visitors’ lead at just a single goal, getting down low to deny Josh Barret on the right.
After the break, Leicester’s youngsters continued to press and Loft headed narrowly over, although the linesman’s flag was raised on the nearside.
At the other end, the impressive House, Reading’s No.9, cut inside his man and drilled an ambitious effort just wide of Johansson’s near post on the right flank.
In Brief: Leicester City U23s 0 Reading U23s 2
The goals from the Leicester City Development Squad's Premier League International Cup defeat by Reading at Holmes Park.
They did get their second goal of the night eight minutes into the second period as Danny Loader’s shot was well saved by Johansson, but House pounced to tidily convert the rebound.
Raúl Uche Rubio, introduced alongside Tyrese Shade in the 58th minute, looked to make an immediate impact, breaking free of his man, but a powerful drive whistled over the bar.
With six minutes to go, Calvin Ughelumba was adjudged to have felled Loader in the penalty area, but Johnasson got across to his right to brilliantly save the Reading man's low spot-kick.
But the match eventually got away from City as Reading settled on their lead in the latter moments to give them an early points advantage over Sparta Praha and Feyenoord in Group B.
Leicester City Development Squad
City's youngsters line up ahead of kick-off.
Conceding another in the second half, just as City appeared to be forging a route back into the tie, ultimately cost the Club's youngsters dearly in a frustrating game.
Ben House, a danger throughout, was the thorn in their side as his capitalised on a loose ball in the box to tap it past Viktor Johansson, leaving the Swede with little chance of keeping it out.
Tee was in form for the Under-23s on Friday.
After impressing last season among the Under-18s group – and winning the Club’s 2017/18 Academy Player of the Season award – Conor Tee’s progress continued with a start for the Under-23s.
In tough circumstances against a well-drilled Reading outfit, Tee, 18, caused problems for the visitors’ defenders, showing industry in the final third throughout the game.
Winger Ndukwu looks for space in the final third.
The Foxes travel to Merseyside on Monday to resume their Premier League 2 campaign with a clash against 2016 Division 1 champions Everton at Goodison Park (7pm BST kick-off).
City: Johansson, Ramsay (Shade 58), Ughelumba, Knight, Pascanu, Johnson (c), Tee (Edwards-John 62), Kaba Sherif, Loft, Ndukwu, Leshabela (Uche Rubio 58)
Subs not used: Heaven, Stolarczyk
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