It was the o-ring gasket!
It looked intact, but guess it must have had a microtear or something. The Fzone regulator came with 2 extra-replacement ones and once I changed it everything worked well with no leaks!!
Thanks everyone for your help on this!
On a different note, the place I got my Co2 cylinder exchanged mentioned that the best way to know when ones Co2 cylinder is going to be empty is by weight as
@techman81 mentioned. He advised to note down the weight with regulator and keep re-checking and take in for replacement when the weight is down by 4 lbs for a 5 lbs tank (the cylinder itself probably measures 7-8 lbs).
I am guessing the drop in the pressure might have been from this gasket leak, since my prior tank weighed atleast 1/2 full.