Five-time champions India needed a victory to stay in the competition, instead it was the Black Sticks who scored two second half goals to keep their flag flying in the tournament.
New Zealand struck through Andy Hayward from their second penalty corner in the 40th minute before Cory Bennett took the match out of India's reach, scoring the team's second goal in the 55th minute.
Despite the 3-3 draw against Korea earlier in the day, six-time champions Australia are still atop the leaderboard with eight points from four games, followed by hosts Malaysia (7 points) and New Zealand (6), who has leapfrogged to the third spot by virtue of the win over India.
Korea have four points from as many games just ahead of India (3 points).
Pakistan, who drew with Malaysia on Thursday, is now out of the title hunt. Malaysiahave now become the first team to book its place in Sunday's final.
New Zealand now have to beat Australia in their final round-robin game on Saturday to make the title clash.
Having won only one match (against Pakistan) out of the four they have played so far, India are out of the reckoning and will take on Malaysia in their last league fixture on Saturday.
India had earlier lost to Australia and Korea in their opening two games.
It was New Zealand who had the first look at the Indian goal but forward Stephen Jenness' shot was kept away by in-form Indian goalkeeper P R Sreejesh.
It was an evenly contested opening half with both India and New Zealand producing a couple of scoring chances, only to denied by their respective defensive lines.
Indian custodian Sreejesh, in particular, was brilliant in the first half as he pulled off numerous saves, including a double save just 10 minutes from the break.
After a barren opening half, the Indians made a lively start but it was the Black Sticks who had the first shot at the goal.
Hayward gave New Zealand the lead in the 40th minute from their second penalty corner with a powerful, angling low flick, which beat Sreejesh all ends up.
Jolted by the goal, the Indians tried hard to get their acts together and strapping Nitin Thimmaiah injected some life into the Indian attack. He was complimented well by the energetic runs of Chinglensana Singh down the left flank.
The Indians almost managed to restore parity through Dharamvir Singh, but his turn-around hit from Thimmiah's defence splitting cross just sailed over the New Zealand bar.
But New Zealand were in no mood to let their guard down and came up with break-away moves to hassle the Indians.
A delectable reverse hit by Blair Hilton from a tear-away cross on the left by Stephen Jenness was of the top-draw variety but it skidded out brushing the near post.
In search of the equaliser, the Indians managed to earn a penalty corner in the 52nd minute but Rupinder Pal Singh's straight flick was not good enough to test New Zealand goalkeeper Hamish Mcgregor, who also denied Dharmvir Singh from the subsequent rebound.
Benett took the game away from India when he scored from a rebound after Hayward's initial flick, from New Zealand's third penalty corner, was saved by Sreejesh.
India's chief coach Micheal Nobbs said his wards were just not upto the mark against New Zealand.
"The disturbing factor was to see the boys missing out on elementary things like dropping the call and not marking the man in penalty corner conversions. We played far below our potential. We did not even play 50 per cent of the way we played against Pakistan," Nobbs said.
"There is still a match (against Malaysia) to go for the boys to learn. This edition of the tournament from out our point of view was to identify talents for the Junior World Cup and to some extent the purpose has been served," he insisted.