Australian coach Guus Hiddink has no doubt Italy's last-gasp penalty to end the Socceroos' World Cup dream was a mistake by the referee.

The Socceroos were bundled out of the second round 1-0 by the three-time world champion in the most dramatic fashion - with the final kick of the game when substitute Francesco Totti slotted home from the penalty spot in injury-time.

Spanish referee Luis Medina Cantalejo awarded a spot-kick after Lucas Neill's challenge on Fabio Grosso in the box, with television replays casting doubt on whether the decision was correct.

Hiddink said there was no doubt in his mind the referee had got it wrong, though Italy had battled bravely throughout the final 40 minutes of the second half with 10 men after centre-back Marco Materazzi was sent off in what looked a similarly harsh decision.

"If you see the replay, there was no doubt it was not a penalty," Hiddink said.

"That's bitter to see that in the last second.

"But overall when the emotion goes down, we can very proud of what this team has achieved in the last four games."

The penalty decision was a particularly cruel blow for Neill, who has been the Socceroos' best player of the tournament and was magnificent again on Monday.

It turned out the final act of a match which - as the Socceroos have made a habit of in their brave run through the tournament - was packed with incident.

Italy had the best chances of the opening half, with giant striker Luca Toni causing all manner of problems and having three clear chances to open the scoring.

First he headed just wide after only three minutes, before goalkeeper Mark Schwarzer made a superb stop of a goalbound Toni shot in the 23rd minute - one of two important saves in the space of a couple of minutes.

The match turned the Socceroos' way when Materazzi was sent off in the 50th minute for a clumsy challenge on Marco Bresciano, which probably deserved a yellow card rather than the red Cantalejo produced.

After Italy had several chances to go ahead, the Socceroos then took control while their better-credentialled rivals looked on their last legs.

First Scott Chipperfield forced a great save from goalkeeper Gianluigi Buffon in the 59th minute, while Tim Cahill powered a header over the bar inside the final 10 minutes.

But the Italians soaked up all the pressure, then launched one last raid of their own when fullback Grosso skipped around Bresciano wide on the left, worked into the box, and tumbled over Neill.

Italy now plays the winner of Monday's Switzerland-Ukraine round of 16 match in Hamburg on Friday (SAT 0500 AEST).

The Socceroos were without star attacker Harry Kewell, who entered the stadium on crutches with an ankle injury.

Hiddink said Kewell had aggravated an ankle problem after the Socceroos' 2-2 draw with Croatia game, with the crutches just to take pressure off the joint.

His immediate prognosis is not yet known.

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