Teenage talent Nic Tomasiello converted from the penalty spot to send Tarrawanna through, after a nerve-shredding penalty shoot-out against Wollongong United on Sunday.
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The score was left at 2-all after extra-time, after the Blueys had led twice, with Ricky Goodchild finding the net and an assist from a free kick for Michael Robinson in the 98th minute.
But more drama was to come, as Matthew McNab was sent off for a second yellow card while celebrating the equaliser with five minutes left in the extra-time period.
Then Jake Morlando's shot went wide shortly after the restart, the elimination final going to penalties, before Tomasiello coolly slotted his chance to seal a 5-4 triumph from the spot.
"He's a level-headed kid with a lot of talent, so I was really happy for him," Tarrawanna coach Peter Willis said.
"Penalties can go either way, but you can only ask who wants to take it on to have a shot and he put his hand up.
"We're alive for another day, but obviously there's a big challenge to come against Albion Park."
Goodchild had scored before half-time, but McNab converted a penalty as injury time began to level it, setting the stage for one of the most dramatic IPL finals in recent times.
The Blueys now meet Albion Park after the White Eagles went down 2-nil to Corrimal in Sunday's major semi-final.
In what loomed as a strike-force battle between Park's Cameron Morgan and Corrimal's Van Elia - the two leading goalscorers, it was Rangers teammate Tim Wylie who opened the scoring after making the most of a failed clearance on 30 minutes.
Elia doubled the lead five minutes later and Albion Park never recovered.
Tarrawanna, who held off Woonona in the final round just to make the finals, now meet Albion Park, while Corrimal advance to the grand final qualifier against Wollongong Olympic, who won the league by eight points.
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