John Carew won and scored two late penalties to see off Crystal Palace and keep alive Aston Villa's hopes of reaching a second Wembley final.
Gabby Agbonlahor glanced home Ashley Young's corner to put the hosts ahead.
Darren Ambrose levelled from the penalty spot after Stephen Warnock's clumsy challenge on Alan Lee.
Carew was then twice fouled by Matthew Lawrence in the box and blasted home both spot-kicks as Villa made the last eight for the first time in 10 years.
It was a sorry end to a brave display from the Eagles, who went into administration last month.
Villa will be relieved to have survived Palace's spirited second-half fightback as they prepare to face Manchester United at Wembley on Sunday.
The two sides had starkly contrasting preparations for the match with Villa basking in the build-up to the Carling Cup final and Palace left to contemplate the expected exit of boss Neil Warnock, who has been strongly linked with Queens Park Rangers.
The sides' previous meeting had ended in controversy when Warnock fumed at the erroneous award of a corner that led to Stiliyan Petrov's late equaliser.
If he was angry then, he is sure to be further inflamed by a near carbon copy of the Selhurst Park incident that led to Villa's first goal.
The hosts started in blistering fashion as Palace keeper Julian Speroni kept the visitors in it with two smart stops from Carew and another from Young.
The best early chance fell to Agbonlahor, who expertly spun past Claude Davis and burst into the box only to see Speroni parry his low shot.
Warnock then wasted a golden chance to tee up the poised Carew after being brilliantly sent through by Milner.
Palace centre-back Davis made numerous crucial last-ditch challenges and was possibly fortunate not to concede a penalty when one of his clumsier efforts on Agbonlahor went unpunished by referee Martin Atkinson.
But just as it seemed Palace would reach half-time unscathed, they fell behind after another disputed decision by the referee minutes before the break.
The ball appeared to touch Milner last when it rolled out of play as he tussled with Nick Carle by the touchline but the England midfielder's sheepish appeal rendered a corner-kick.
Young duly whipped the set-piece into the mixer and Agbonlahor shook off Shaun Derry and converted from four yards out.
The goal inspired Palace to create their best chance of the half as Carle's 25-yard strike from whistled just past the post.
The Eagles began the second half brightly with Darren Ambrose twice testing Brad Guzan from long range.
Agbonlahor was then foiled by Speroni in a one-on-one, before Young saw his effort brilliantly tipped around the post by the impressive Palace keeper.
Neil Danns had a great chance to level when he lashed an effort across the face of goal from a few yards out after Villa failed to clear.
But the visitors didn't have to wait long for an equaliser, with official Atkinson again in the thick of the action.
Warnock bundled over Lee eight yards from goal and the referee gave a penalty, which Ambrose struck sweetly into the right-hand corner.
Villa, mindful that extra-time would do little to help their Wembley preparations, immediately found an extra gear as they searched for a winner.
Ashley Young and Richard Dunne both blazed over from close range before a rush of blood from Palace defender Lawrence helped the hosts regain the lead with nine minutes remaining.
He needlessly hauled down Carew in the area and the Norwegian striker picked himself to blast the spot-kick into the roof of the net.
The brave but tiring visitors had no riposte and Villa continued to pile forward, with Speroni performing more heroics to superbly tip over Stewart Downing's drive from the edge of the box.
The win was secured when Lawrence again conceded a spot-kick with a rash challenge on Carew just inside the box.
The Norwegian once again finished emphatically as Villa made the quarter-finals for the first time since they finished runners-up to Chelsea in 2000.
