Two goals in the first seven minutes set the tone for the contest and there was an element of controversy in both.
Alan Smith's sixth minute opener looked suspiciously offside, whilst Raul appeared to put in the equaliser with his arm, just 60 seconds later.
Luis Figo made it 2-1 just before half-time only for Mark Viduka to equalise ten minutes into the second half, however, it was local hero Raul who had the final say in the scoring stakes as his second header of the game, just before the hour mark won the game for The Meringues.
The game got under way at a slow pace, with both sides stroking the ball around with ease, although the status of the league was reflected by the attendance, which was nowhere near capacity.
It took just six minutes for the game to heat up as with Real pressing down the left through Santiago Solari, Leeds nicked the ball away and counter-attacked to perfection.
Viduka took the ball on before slipping a cross to Smith who placed his shot under reserve keeper Cesar.
Within a minute the home side were level as Figo's free-kick saw a rare header from Raul, although the Leeds defence claimed the Spanish international handled the ball.
The game was superb entertainment with Smith having another chance in the 12th minute, only for him to head weakly into Cesar's arms when well-placed.
Despite playing in the high-tempo 'El Derby' Real played most of their first choice team and Fernando Morientes and Steve McManaman both shot high over the bar when they would expect to do better.
However, at the other end Smith and Viduka caused Real's defence plenty of problems, the young Englishman especially appearing to revel in the high-profile setting of El Santiago Bernabeu.
Geremi missed a golden opportunity to put his side in the lead with seven minutes to go in the first half, the star midfielder getting behind Leeds' defence only to shoot straight at Nigel Martyn.
Real were not to be denied and with four minutes to go before the interval, the most expensive man in world football, Figo showed his undeniable ability to beat a couple of defenders before hitting a deflected shot that trickled into the net, seemingly surprising Martyn.
The second half started with Leeds trying to re-establish themselves in the game, and they succeeded with some neat passing moves.
It took a set-piece for the visitors to get back on level terms as Ian Harte's 55th minute corner saw more Spanish defensive indecision and Viduka was left unattended to head home.
This goal galvanised Real and any thought of another superb European victory were dimmed just as quickly as they were lit when the home side replied with a set-piece routine of their own.
A corner was swung out to Figo on the edge of the area and his floated chip saw Raul get on the end of it, to head past Martyn to make it 3-2.
Leeds suffered an injury scare mid-way through the second half as Lucas Radebe went in for an aerial challenge and seemed to fall awkwardly.
The South African defensive lynchpin was stretchered off, to be replaced by Gary Kelly.
In the last 20 minutes, Leeds showed typical grit and determination in their efforts to get back on level terms, Viduka seeing a 70th minute effort scrape the crossbar.
The Australian was in inspired form and when Smith played him through for his second chance in a couple of minutes Viduka will feel he could have done better but clipped his shot just wide.
At the other end Figo will feel he too could have scored when Geremi found him with a brilliant pass.
The final quarter of an hour was a hard-fought affair and both Claude Makelele and Figo picking up their third bookings in the league format, meaning they will miss the final game against Anderlecht.
Despite both side appearing to have legitimate penalty appeals, neither were given by Polish referee Ryszard Wojcik and the final result means Real have won the group with a game to spare.
Meanwhile, in the other Group D match, Lazio finally got their first win with a hard-fought 2-1 win over Anderlecht in the Olympic Stadium.
Lazio have made a habit out of winning close games, particularly towards the end of the fixture and so it proved on Tuesday night.
Claudio Lopez scored direct from a corner just before half-time to give the home side a lead they hardly deserved, as both sides played the game at walking pace.
Neither team had a chance of qualification and it seemed that the players on show were not particularly interested in playing for pride, with their respective league competitions becoming the prime consideration for both teams.
Any thoughts that the second half would be as tame as the first were put to rest when Romanian star Alin Stoica blistered a 25 yard shot literally through the hands of Luca Marchegiani, in the 50th minute.
The Belgian side pressed forward looking for an impressive win but were thwarted 13 minutes from time when midfielder Robert Baronio broke into the box and placed his shot past Zvonko Milojevic for the winner.
However, the result will come as little comfort for the Lazio faithful who will be desperately disappointed at their side's inability to challenge Real Madrid and Leeds at the top of the table.
Click here to see our exclusive Opta Stats from Real Madrid v Leeds
