With the game heading to extra time, and scores still locked approaching the end of the mandatory ten minute period, Young was penalised for being offside in attempting to stop a Kalyn Ponga field goal attempt.
Ponga couldn't get a shot off before Young was able to place him under pressure, and would step to his right.
While referee Klein originally called six again on the play as per the rules, the play broke down following Ponga's run, and with the advantage being played, he had no option but to bring it back to the penalty.
Ponga would then slot the penalty goal with just 80 seconds remaining in the contest, and the Knights would book their spot in next week's semi-final against the New Zealand Warriors on the road.
Speaking at his weekly footy briefing on Monday afternoon, the NRL's head of football Graham Annesley said referee Klein simply had no choice but to blow a penalty.
"This was a penalty that was awarded that ultimately won the game for the Knights. It was an offside penalty against Hudson Young," Annesley said.
"The referee initially doesn't originally award a penalty because the play is underway and he rules six again. The play then breaks down and you'll see Hudson Young has an active impact on the game because Kalyn Ponga is about to shoot for field goal, but as Hudson Young approaches, he knows he can't get the field goal away so he steps and runs.
"The play then breaks down, and when it does, the referee has no option but to give the penalty because he has already awarded six again."
Annesley also confirmed that Young was offside, and the decision was correct.
Under the NRL rules, a defender must have both feet behind the match official's mark of ten metres unless on the goal line, where one foot is required behind.
Annesley said that Young was at least a metre in front of Klein by the time the ball had cleared the ruck, however.
"As the ball passes under the foot [at the play the ball], bearing in mind that the referee isn't on the goal line so you have to have both feet behind the referee, Hudson is at least a metre or so in front of the referee and clearly offside," Annesley said on the specifics of the incident.
The penalty sees the Raiders tumble out of the competition after putting up a dramatic fight in the Hunter, where the game finished 30 points to 28.
The Raiders, who have suffered a disappointing slump down the NRL table during the second half of the season and only just squeezed into the top eight, were expected prior to kick-off to be cannon fodder for the red-hot Knights, who have now won ten straight.
Newcastle's semi-final against the Warriors will be played in Auckland at Mt Smart Stadium next Saturday, with kick-off set for 4:05pm (AEST), 6:05pm (NZST).