Considered an underdog compared to their rivals, Vietnam gave an outstanding performance coming from behind to level the result at 4-4 during extra time.
The match was decided with a penalty shootout and forward Phung Trong Luan sent Vietnam to the first-ever semi-final match in their history with a straight shot that brought Vietnam a 2-1 win.
Earlier, Morioka Kaoru and Osodo Nobuya of the defending champions missed their shots. Kaoru, who scored two goals in this match, hit the crossbar while Nobuya's kick was blocked by goalkeeper Nguyen Dinh Y Hoa.
Vietnamese forward Duong Anh Tung also wasted his chance with the second penalty shot but Luan made the Universal Stadium burst into cheers with his perfect shot that Japanese keeper Fujiwara Jun could not react to in time and gave Viet Nam an unbelievable win.
Viet Nam will next meet Iran in the semi-finals.
A hat trick from Hossein Tayebi helped Iran cruise to a 7-0 victory over Kyrgyzstan in the earlier match.
Iran took the lead at seven minutes and two goals from Tayebi put the 10-time winners in firm control at the interval.
Iran's dominance continued after the restart as Ghodrat Bahadori, Asghar Hassanzadeh and Mehran Alighadr all got on the score sheet before Tayebi completed his hat-trick to seal the win.
In other activities of the last eight round, Thailand book their place in the semi-finals with a 6-1 win over Australia.
Meanwhile, Dilshod Rakhmatov scored twice as hosts Uzbekistan advanced to the last four after recording a 3-0 victory.
All four teams of the semi-finals will automatically qualify for the FIFA Futsal World Cup in Colombia later this year.
The fifth-place team, who will be determined after play-off matches, will also earn a berth.
VNS