City's youngsters took the lead at Ewen fields when Joan Roman pounced on a mix-up in the Celtic defence to tap in from close range.
But the Scots led 2-1 at the break after a simple finish from John Herron and a header from Paul George - the outstanding player on the night.
On target: Denis Suarez scored but City could not get the better of Celtic
George bagged his double with a superb effort after the break before Denis Suarez gave City a lifeline with a cool finish into the top corner with 25 minutes left.
But Tony Watt ended any hopes of a comeback when he finished off George's pass to make it three defeats on the spin for City.
NextGen co-Founder Mark Warburton said: 'It was a sensational game of football. Both sides dealt with the difficult conditions extremely well, and it was great to see such exciting, attacking football.
'The result is a bitter blow for City, who will find it difficult to qualify from the group now. Celtic however will be very encouraged by their first win of the tournament and I'm sure they will be desperate to pick up more points to qualify for the quarter-finals.'
Barcelona and Marseilles occupy the top two places in Group 1.
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