The defeat sent Fanja crashing out of the sultanate's most prestigious event, which had already witnessed the exit of eight-time winners Dhofar earlier on Saturday.
Dhofar and Fanja were joined by former winners - Al Arouba (four) and Muscat (one) – on the sidelines. The 2017-18 HM's Cup will now be without four teams that have shared nearly half the number of titles (22) out the 45 championships held so far.
Speaking to Muscat Daily on Monday, Ahmed al Habsi, the club chairman, said, “It is a very special victory and I dedicate it to the club fans and the board on the happy occasion of the 47th National Day.”
“Mudhaibi has played in the quarterfinals of this prestigious championship twice in the past. But to defeat nine-time champions Fanja makes it a memorable day for all of us,” said Habsi, the elder brother of Oman's legend Ali al Habsi.
“Moreover, the win has come under my tenure as chairman. I am thrilled at the achievement and hope the team betters its previous record in the championship,” he said.
Elsewhere, Omantel League table-topper and defending champion Al Suwaiq had no difficulty in cruising past its opponent on Saturday as it trounced Quriyat 4-0 at the Sohar Sports Complex.
The win gave clear signals to the rest of teams that Suwaiq is one of the favourites to win its fourth title this season.
Al Wasta was the other club to advance with a 3-0 win over Jalan on Saturday.
The teams that progressed into the round of 16 are Nizwa, Sur, Al Rustaq, Samail, Al Nasr, Al Shabab, Sohar, Ahli-Sidab, Saham, Al Seeb, Bidiyah, Al Bashayer, Oman, Al Suwaiq, Al Mudhaibi and Al Wasta.
With the single-leg round of 16 knockout round scheduled to be on February 3, there is a likelihood that the fixtures could be rescheduled in view of the dim chances of Gulf Cup going ahead in Qatar. A final decision on Gulf Cup is expected to be taken on November 30 after Saudi Arabia, Bahrain and UAE pulled out of the tournament in Doha, leaving only Oman, hosts Qatar, Iraq and Yemen in fray.
Kuwait, which in currently suspended by the FIFA, has to wait and see if its suspension is lifted before the end of the month to ensure its participation.
The Gulf Cup may get the go-ahead if there are a minimum of five teams in fray.