Bulgarian international Dimitar Berbatov now plays for AS Monaco and scored the second goal in the French Ligue 1 side's shock 3-1 win in the last 16, first leg tie Wednesday.
On a night of upsets, Hakan Calhanoglu's sublime second half strike gave Bayer Leverkusen a 1-0 home leg win over last season's finalists Atletico Madrid.
Spanish title holder Atletico also had Tiago sent off for a second yellow card late in the game and saw an equalizing effort from substitute Fernando Torres chalked off because it was ruled the ball had gone out of play before he scored.
Tiago had been denied by home keeper Bernd Leno in the best chance of the match for the visitors.
Its coach Diego Simeone summed up the match but still believes his team has a fighting chance of progressing.
"We each had a clear chance, they took theirs and we didn't. It could have been a worse result," he said.
English Premier League Arsenal was a strong favorite to progress when the draw for the knockout stage was made, but Monaco absorbed early pressure before going ahead just before halftime from a counterattack.
Joao Moutinho found Geoffrey Kondogbia, whose fierce shot took a slight deflection off Per Mertesacker and flew past David Ospina in the Gunners goal.
German international Mertesacker was at fault for the second just after the break as he was caught out of position and allowed Anthony Martial to find Berbatov.
The striker, who played for Manchester United and Fulham after leaving Tottenham, controlled the pass instantly before firing an unstoppable shot high into the net.
Trailing 2-0 Arsenal desperately sought a reply and both Olivier Giroud and Danny Welbeck were guilty of glaring misses in front of goal.
Monaco also remained a threat on the break and Berbatov and the excellent Moutinho combined to set up Martial for a chance which Ospina blocked.
Arsenal was given late hope when Alex Oxlade-Chamberlain scored in injury time with a curling strike from just outside the penalty area.
But its chances of going through took a nosedive when Oxlade-Chamberlain turned from hero to culprit when he lost the ball on the halfway line.
Winger Yannick Ferreira-Carrasco, who had come on as a late substitute for Berbatov, raced clear and scored with an emphatic strike.
It left it a desperately disappointing night for Arsenal and its manager Arsene Wenger, who forged his reputation as manager of Monaco before coming to the English Premier League.
And prospects for the second leg scarcely look any better, with Monaco having an excellent defensive record in the Champions League and holding three away goals.
"We are confident in our ability and we deserved to win," Berbatov told Sky Sports. "We wanted to win more than them and were fighting all over the pitch," added the 34-year-old veteran.
Wenger admitted that his team face an uphill battle to reach the quarterfinals with the handicap of a two-goal deficit.
"The task is massive now, the third goal makes it even more difficult but we will have a go."