It was a rollercoaster encounter at Telford's New Bucks Head Stadium.
Shaq Coulthirst opened the scoring after six minutes and we looked in control as Jack Munns built on his fine show against Arsenal to make it 2-0 just before the half-hour.
It was 2-0 at half-time but the game turned in a two-minute spell on the hour as Tm Jakobsson and Lee Evans levelled the score.
However, we hit back again as Dean Parrett fired home for 3-2 with 14 minutes remaining.
Wolves weren't finished though and levelled at 3-3 through Liam McAlinden before Sam Winnall hit the winner four minutes from time.
It was our first defeat in seven in the Elite Group stage having started the second phase of the competition with five wins and a draw. Indeed, the lads have lost just twice in their last 17 matches going back to September.
Senior Professional Phase Coach, Chris Ramsey, reported: "It was an eventful game for the neutral but even when we were 2-0 up, we didn't perform as we normally do.
"We went 1-0 up after good interplay in midfield, the ball was slipped through to Shaq Coulthirst and he did well to outpace the centre-half to go through on the goalkeeper. The initial shot was saved but he reacted well to score the rebound.
"Jack Munns made it 2-0 on 29 minutes after fantastic play in midfield. Nabil Bentaleb received the ball just outside the box, beat a player and had a shot that the goalkeeper parried and Munnsy followed up.
"Their goals came after sloppy play from us, two goals in two minutes. The first came after we failed to close down just outside the box and Wolves (Jakobsson) slotted into the bottom corner.
"Before we could settle and get a foothold back in the game, a cross came back across the box and we failed to pick up the runner (Evans), who headed in.
"Dean Parrett, who was outstanding, got his reward when he hit a shot that deflected home from the outside of the box.
"They equalised again from a counter-attack (McAlinden). There seemed to be no danger but they got the ball wide and played it behind our defence. Milos Veljkovic tried to make a block but the ball ended up going in.
"The winner came late on, we got caught in possession and they broke and scored. Lawrence Vigouroux made a fine save from the initial shot but it just left (Winnall) a tap in.
"All in all, we're disappointed with the performance, but we've learned a lot from the game."
Spurs U21s: Vigouroux, Fredericks (Stewart), Byrne, Luongo, Gallifuoco (Barthram), Veljkovic, Munns, Bentaleb (McEvoy), Coulthirst, Parrett, Ceballos. Unused sub: Priestley.