Western appeared destined to hand City their first defeat this campaign when in-form attacker Kahli Johnson scored in the 45th minute at Ironbark Fields.
But Holly McNamara tapped home in the 83rd minute to earn City a point.
City (26 points) are five points clear of second-placed Brisbane while United sit seventh on 15 points, one behind fifth-placed Wellington and sixth-placed Central Coast.
"We deserved more but football doesn't give points out to the team that deserves it," Smith told AAP.
"But look, super proud of that performance from the girls.
"I think that's a line in the sand, a point to prove in terms of where we want to take our season and to do it against a top side, that gives us great confidence moving forward."
United's goal came in contentious circumstances at the end of an otherwise uneventful first half.
Catherine Zimmerman whipped a cross in for Johnson, who flicked the ball straight at City goalkeeper Malena Mieres.
But Mieres fumbled her save, with the ball ruled to have crossed the line before she caught it again.
City coach Michael Matricciani wouldn't buy into whether the ball had crossed, telling AAP he hadn't seen a replay and the lineswoman had ruled it a goal.
.— Ninja A-League (@aleaguewomen) @wufcofficial score first against the league leaders in dramatic fashion! 😲Melbourne City goalkeeper Malena Mieres thought she saved Kahli Johnson's shot, but it goes down as a goal ⚽�📺 Watch #WUNvMCY live NOW on Paramount+ and 10 Play. pic.twitter.com/Cwvf6pEITvJanuary 17, 2025
Johnson (seven goals) is now level with Emily Gielnik, Fiona Worts and Laini Freier at the top of the golden boot standings.
Matricciani brought on star attacker McNamara at half-time.
The Matilda sparked several decent moments without finding her cutting edge until the game's closing moments.
United's defence was brought undone when Lourdes Bosch burst down the right and cut the ball inside for McNamara to tap home.
Holly McNamara keeps — Ninja A-League (@aleaguewomen) @MelbourneCity's unbeaten streak alive with just minutes left on the clock! 😲🔥The 21-year-old star equalises after being expertly set-up by Lourdes Bosch. 📺 Watch #WUNvMCY live now on Paramount+ and 10 Play. pic.twitter.com/1vkrMBAiHSJanuary 17, 2025
"We left it late but I thought it was definitely a well-deserved point and we probably should have won it on the course of chances over the match," Matricciani said.
"But we learn and we keep getting better.
"Feels like a bit of a loss but we take the point and we move on."
City play Western Sydney away next Saturday while United host Perth on Tuesday night.
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