Gaizka Mendieta kicked Spain’s fifth and final penalty into the middle of the goal to send the Spanish into the World Cup quarter finals.
Spain will now meet South Korea or Italy in the last eight but teetered on the brink of elimination.
The Irish only converted two of their spot kicks after the teams were level at 1-1 after extra time but pushed Spain right to the brink.
Matt Holland handed Spain the shootout advantage when he hit the bar with Ireland’s second spot kick and Iker Casillas saved the third kick form David Connolly and the fourth from Kevin Kilbane with Juanfran and then Juan Valeron both missing the target altogether leaving Steve Finan to keep Ireland n the shootout with a fifth strike before Mendieta gave Spain an unassailable advantage after five spot kicks.
Robbie Keane scored a 90th minute penalty to bring Ireland back level.
Keane scored easily after Hierro had hauled back Niall Quinn at a free kick by holding his shirt for Swedish referee Anders Frisk to give the second spot kick of the game.
An early goal from striker Fernando Morientes almost won the game to send Spain towards a quarter final clash with South Korea or Italy until captain Fernando Hierro gave away the penalty in the last minute.
And the Irish ended normal time on top.
Iker Casillas came right out of goal to save at Robbie Keane’s feet in the 84th minute as Ireland mounted strong pressure at the end of a close tussle.
Shay Given had to save at Raul’s feet in the 72nd minute when Given kicked the ball away after Raul had brought down a high clearance from a cross to clip the ball at goal from close range.
But Ian Harte had the chance to equalize in the 63rd minute.
A fast run down the right wing by Damien Duff was brought to an end by a foul from Juanfran who was booked and conceded a penalty.
But the Leeds defender took a very poor spot kick.
Harte went for placement and goalkeeper Iker Casillas almost dived past the kick and the ball came back off his body. Kevin Kilbane then volleyed the rebound wide from the centre of goal.
Casillas had almost handed Ireland a 50th minute equalizer when he dropped a cross only for Kilbane’s shot to be cleared off the goal line by Fernando Hierro.
Morientes had hit a straight drive in the 47th minute straight at goalkeeper Shay Given after Raul had spun the ball through to him with a clever turn and shield.
Fernando Morientes gave Spain the lead in the 8th minute.
A hooked cross from the right wing by defender Carles Puyol allowed Morientes to get to near post and glance a header into goal.
Morientes had tested Irish goalkeeper Shay Given with a header underneath his cross bar four minutes before and Raul had given an early warning to their opponents when centre back Steve Staunton needed to block a clever through pass after Raul led a quick break in the second minute.
A minute later Robbie Keane brought the ball down on the left wing and carried it forward before curling a shot from long range around the far post.
With Spain in the lead the game got into a pattern.
The Spanish would leave their four defenders back to protect goal and leave attacking decisions to Raul and Morientes who were regularly put clear on goal only for offside to be given nine times.
Both strikers were very close to breaking the offside trap in the first half and effectively winning the tie but Robbie Keane was clear and onside in the 44th minute to lift the ball over goal as goalkeeper Iker Casillas advanced with his back to goal.
Spain went down to ten men after Albelda succumbed to a groin injury at the end of normal time and Spain played the thirty minutes of extra time with ten men after they had already used three substitutes before full-time.
Extra time saw a shot wide from Robbie Keane and Baraja with Connolly also going close but Spain held out well.
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