The two sides were locked 1-1 at the end of regulation time.
After a barren first half, Oman took the lead in the 80th minute through substitute Muadh Yahya Al Jahdhami. But the two-time champions DPR Korea fought back and restored parity four minutes later through Kim Pom Hyok to take the match to tie-breaker.
In the shootout, Kye Tam, Yun Min, Cha Kwang and Kim Pom Hyok were on target for DPR Korea while Kim Kyong Sok's shot was saved by the rival keeper.
DPR Korea now meet Iran in the semi-finals to be played on September 29.
The first half of the match was fought on even terms with either team creating scoring chances but failed to break the deadlock. DPR Korea came up with dangerous counter moves and even wasted a penalty in the 23rd minute when Yun Min saw his kick hit the post midway in the first half.
DPR Korea's Sin Kwang Sok had a glorious chance at the stroke of the break to score but he headed straight into the hands of rival keeper Sheyadi off a cross from the right by Han Kyong Hun.
Oman coach Yaqoub Saud Al Sbahi made a change in the second half as he brought in striker Muadh yahya Al Jahdhami in place of defender Naji Fayal Al Gheilani and the move paid off as he scored in the 80th minute
Mohammed Al-Alawi laid a pass to substitute Muadh Yahya Al Jahdhami who beat the rival keeper with a low shot to the far post.
(REOPENS SPD 22)
In another quarter-final match, Mohammed Dawood scored twice as Iraq blanked Uzbekistan 2-0 at GMC Stadium in Bambolim to set up a semifinal date with Japan.
Dawood consolidated his team's position when he netted his second goal on the 78th minute, shortly before Shukhrat Nematov was dismissed, as Iraq secured qualification for the 2017 FIFA U-17 World Cup.
They now meet Japan in the second semi-final on Thursday, while Iran clash against DPR Korea.
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