Law Hiu Chung (19'), Ryan Griffiths (24') and Mahama Awal (33') scored for South China at the Indira Gandhi Athletics Stadium here.
It was the first loss of competition for Mohun Bagan, who have already qualified for the round of 16 as group winners.
The Hong Kong outfit had the opportunity to score as early as the third minute but Mohun Bagan goalkeeper Arnab Das came in the way.
South China missed their third chance to strike before Mohun Bagan squandered a chance of their own in the 14th minute.
The visitors finally took the lead five minutes later when Chung managed to chip the ball into the back of the net. They soon doubled their lead as Chung's corner kick was headed in by Chan Wai Ho with Arnab getting little time to defend.
South China struck their third and final goal when Awal's strike took a deflection and the Mohun Bagan goalkeeper could not do much to save it.
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