By coincidence both the German East Asiatic squadron and the British squadron searching for it, arrived at the Falkland Islands in the south Atlantic within 24 hours of each other. The British ships under the command of Admiral Sturdee had been hastily sent to the south Atlantic after the defeat at Coronel, and had stopped overnight at Port Stanley (Falkland Islands) to re-coal. Sturdee's squadron consisted of the battle cruisers Invincible and Inflexible, armoured cruisers Kent, Carnarvon and Cornwall and light cruisers Glasgow and Bristol. In addition, the pre-dreadnought battleship Canopus, which along with Glasgow had escaped the destruction of Craddock's ill-fated squadron, had been beached to provide harbour defence. The armed merchant ship Macedonia was also patrolling the area.
Unaware of the British ships presence, von Spee planned to attack Port Stanley harbour on 8 December, and Gneisenau and Nürnberg were detached to scout the area, with Scharnhorst, Dresden and Leipzig following some 15 miles to the rear with three colliers. The weather was fine and lookouts from Canopus posted on a hill spotted the leading German ships at 7.50 am. They signalled Sturdee, who promptly ordered the British ships to make steam with all haste. At 8.30 am the German ships sighted Macedonia returning from patrol but it was not until 9.00 am that the tripod masts of the British capital ships were seen. Initially these were mistaken for pre-dreadnought battleships which would be too slow to catch the German squadron. Meanwhile, the Gneisenau had come within range of Canopus, which was hidden behind a hill and was using spotters to direct its gunfire. Canopus fired only one salvo before the surprised German ships turned away, but it saved the British squadron from being caught at anchor in the harbour.
At 9.45 am Glasgow had raised enough steam to leave the harbour and set off in pursuit of the German squadron which was now heading south-east in the hope of finding bad weather in which they could elude their pursuers. By 10.00am Invincible, Inflexible, Kent, Carnarvon and Cornwall had joined the pursuit. Bristol, which had been undertaking repairs, and Macedonia, did not leave the harbour until later, and directed their attack on the three German colliers, sinking two of them.
While the German cruisers had a 20 mile lead on the British ships, they soon realised that they were being pursued by fast battle cruisers, which could overhaul them long before night fall. At 12.47 pm the rear German ship, Leipzig, was in range of the battle cruisers, which opened fire, although smoke from their own funnels obscured their range finders, making accurate gunnery difficult.
Half an hour later, realising escape was impossible, von Spee ordered Gneisenau and Scharnhorst to turn and engage the British ships while the three light cruisers continued on their south-easterly course. Sturdee had anticipated such a manoeuver, and while Invincible, Inflexible and Carnarvon engaged the German cruisers, Glasgow, Cornwall and Kent chased the three light cruisers. The battle then split into two separate actions.
While the German gunnery was more accurate than the British, the heavier shells of the battle cruisers did more damage and Scharnhorst soon was badly damaged, and sank at 4.17 pm with the loss of all hands, including von Spee. Badly damaged, Gneisenau's ammunition ran out at 5.15 pm and her remaining crew scuttled her before abandoning ship. 190 of her 765 crew were rescued from the water.
At 2.45pm the Glasgow came within range of Leipzig, but accurate German gunnery damaged Glasgow and she was forced to turn away. The action had, however, temporarily slowed Leipzig enabling Cornwall to come within range. The German light cruisers split up, and while Kent pursued Nürnberg, Glasgow, with a damaged boiler reducing her speed, briefly followed Dresden until she gave up the chase and returned to join Cornwall in engaging Leipzig. After a running fight, Nürnberg sank at 7.27 pm and Leipzig at 8.35 pm.
Dresden escaped the battle and spent the next three months hiding along the South American coast. She was eventually caught and sunk by Glasgow and Kent on 13 March 1915.
With the sinking of the last of the East Asiatic Squadron's ships, German naval activity in the Pacific reduced to periodic mine laying by disguised merchant ships for the remainder of World War 1. The battle cruiser Australia, which had featured in the early search for von Spee's squadron, was transferred to the British Home Fleet, but was destined to miss all the major naval actions of the war.