The header seconds from the final whistle left City fans close to tears and put a smile back on the face of United manager Alex Ferguson just when he thought his men were dead and buried.
It also put the pressure back on leaders Chelsea, playing fifth-placed Tottenham Hotspur later at White Hart Lane, to win and restore their four-point advantage with three matches remaining.
United have 76 points to Chelsea's 77 with third-placed Arsenal, who visit Wigan Athletic on Sunday, on 71.
"It (winning the title) certainly would have been very, very difficult (without Scholes's goal)," a relieved Ferguson told Sky Sports television.
"I think we deserved to win the game but I couldn't see a goal coming to be honest with you.
"We are hoping Tottenham win tonight and if they do, the title is back on," he added.
It was the second time this season that City had lost out to their cross-town rivals in added time, the league's wealthiest team beaten 4-3 by United at Old Trafford in September when Michael Owen scored in the 96th minute.
Saturday's defeat at Eastlands was every bit as painful since it dented Abu Dhabi-owned City's hopes of staying ahead of Tottenham and seizing the fourth and final Champions League qualifying berth for next season.
At the other end of the league, Bolton Wanderers took a big step towards survival by beating Stoke City 2-1.
Burnley slumped ever deeper into the relegation mire when they lost 2-1 at Sunderland, with the home side 2-0 up at halftime thanks to goals from Fraizer Campbell and Darren Bent.
Steven Thompson pulled a goal back for Burnley with a right-footed shot in the 82nd minute.
Burnley dropped to 19th place, with only relegated Portsmouth behind them, on 27 points and having played one game more than Hull City who leapfrogged ahead on 28 after a goalless draw at Birmingham City.
West Ham United, three points clear of Hull, play at Liverpool on Monday.
Europa League semi-finalists Fulham moved up to 10th with a 0-0 home draw against Wolverhampton Wanderers, who climbed closer to safety. Everton beat Blackburn Rovers 3-2.
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