Dembele netted past Ederson with VAR ruling there was no foul on Aymeric Laporte in the build-up.
City had a glorious chance to get back into the contest but somehow Raheem Sterling missed a tap-in by blazing the ball over the crossbar.
Moments later Lyon had ended the match by making it 3-1 as Dembele scored after an Ederson howler.
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