Goalkeeper Yassine Bounou emerged the hero for the Atlas Lions, saving Crysencio Summerville’s decisive penalty before Ismael Saibari converted the winning spot-kick.
Morocco will now face co-hosts Canada in the Round of 16 on Saturday in Houston.
The Netherlands looked set for victory after Liverpool forward Cody Gakpo gave them the lead midway through the second half. Gakpo, who recently lost his unborn child, celebrated emotionally with teammates after scoring.
However, Morocco forced extra time when Issa Diop headed home an equaliser in first-half stoppage time from Chemsdine Talbi’s cross.
Both sides created chances in extra time, with Morocco coming closest through Soufiane Rahimi, whose effort was brilliantly saved by Dutch goalkeeper Bart Verbruggen.
In the penalty shootout, Morocco recovered after Neil El Aynaoui missed their opening kick to seal a dramatic victory and book their place in the last 16.
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