The result leaves England needing to win both games against New Zealand, live on Sky Sports Cricket, to be sure of a place in the final and one more chance to get the better of Australia in the shortest format. His 43 was the only innings of note and at 49 balls ranked as the slowest of his 20 knocks of 25-plus in the format.
Buttler, nevertheless, is confident of making it to the final, "We still have a chance to make that final". "We didn't do that".
Lynn was in no mood to play it safe following the early wicket though, as he took the attack to Willey and fellow opener Tom Curran.
Alex Hales's 50th T20 worldwide lasted 11 balls as he was caught smartly by Aaron Finch, who had to run back from mid-on to catch the ball over his right shoulder at the second attempt.
England earlier posted a modest 137-7 from their 20 overs with stand-in captain Jos Buttler (46) top scoring.
The hosts ended on 138-3 after Australia captain David Warner won the toss and elected to field.
In the sixth over of England's innings at the MCG on Saturday night, Malan pushed a length ball from Aussie paceman Billy Stanlake towards mid off and had eyes for a quick single.
George Bush: 'pretty clear evidence Russian Federation meddled' in USA election
Bush said Thursday he thinks there's " pretty clear evidence that the Russians meddled" in the 2016 USA presidential election. Bush said it wasn't clear if Russia's "meddling" directly affected the election, though he said it was clear they tried.
An Australian side filled with fresh faces from the Big Bash booked their spot in the Auckland showpiece with a dominant seven-wicket win in, having already coasted past England in their first match and blown away co-hosts in the curtain-raiser.
However, that brought the in-form Glenn Maxwell in the middle who continued the good work done by Lynn.
A reverse sweep off the second ball of the 10th over, bowled by Rashid, took Maxwell to 1,000 T20i runs.
The Yorkshire all-rounder added a six-ball ten, including two boundaries, before offering an easy catch to David Warner.
He fell to Chris Jordan in final over of the powerplay Australia were 51-2.
The next match of the series will be played in Wellington now between England and New Zealand which will also be the must-win encounter for the poms.
That is despite Australia fielding a side shorn, Warner aside, of all its Test stars ahead of the forthcoming series in South Africa.