With Chelsea winning 2-1 at Aston Villa, Man City are now seven points behind the Premier League leaders and their hopes of defending their title look slim.
The hosts started sluggishly at the Etihad and fell behind in the 34th minute when Gaston Ramirez???s effort the post and David Meyler converted the rebound.
It looked as though that goal might be enough to give Hull a first-ever league win at Man City but Milner’s superb last-gasp free-kick snatched a point for the champions, who have now not won for five successive matches.
While the goal left the Hull players disappointed at the final whistle, it is the champions who should be more frustrated by the result and their below-par performance.
In the first half they were particularly lacklustre and even though they showed greater urgency after the break they only once tested David McGregor.
The return of Yaya Toure from the Africa Cup of Nations??clearly cannot come quickly enough as they have now??played six matches without him this season and not won??any of them.
Hull were hardly in form themselves but they looked the more composed and comfortable side in the early stages and Joe Hart was the first keeper to be tested by a low shot from Sone Aluko.
The visitors should have gone ahead after 15 minutes as Ahmed Elmohamady headed Robbie Brady???s cross against the bar from close range.
It didn???t get any better for the hosts as they found it tough to create any chances and also looked unconvincing at the back.
The defending for the opening goal was poor as Hart came out to clear when Martin Demichelis hesitated but only found Jake Livermore and had to save his quickfire shot.
Pablo Zabaleta then had a chance to clear but Ramirez nipped in and fired a shot against the post. This time there was no Man City player nearby and Meyler reacted quickest to tuck home the rebound.
It might have got worse for Man City before the break as they failed to clear a Tom Huddlestone free-kick and the ball fell invitingly for Aluko, but he blazed over.
The introduction of Jesus Navas at the break helped Man City raise their game and they finally tested McGregor with a snap-shot from Dzeko.
David Silva then had strong claims for a penalty turned down when he appeared to be pushed in the back by Alex Bruce.
Man City continued to dominate possession but it looked like it might be Hull???s day when Aguero brilliantly controlled a cross with 89 minutes on the clock but his shot rebounded off the bar.
However, Milner bent a superb free-kick around the wall in injury-time after Aguero was fouled to salvage a point for Man City.