Lee Bowyer's cool finish took spirited Birmingham out of the relegation zone and sent Chelsea crashing to a third Premier League defeat in four games.
Bowyer ran on to Cameron Jerome's cushioned header to fire the only goal past keeper Petr Cech after 17 minutes.
The champions missed a host of chances, with Didier Drogba going closest when his wonderful header hit the bar.
But the home side also defended superbly and keeper Ben Foster made some stunning saves to secure the win.
Birmingham boss Alex McLeish will no doubt feel his side deserved their victory, not least for their hugely impressive rearguard action, although no-one could argue they were slightly fortunate to be ahead at the interval.
But Chelsea, who only remain top of the Premier League on goal difference following Manchester United's victory over Wigan, wasted at least five glorious chances before the break and that set the tone for a frustrating afternoon in the west Midlands.
The return of Alex at centre-half seemed to do the trick in restoring confidence to the Chelsea ranks, while Paulo Ferreira's switch to right-back and Salomon Kalou's recall certainly helped the balance.
And in a bright start from the visitors, the lively if somewhat erratic Kalou rolled an early effort wide after a wonderful first-time chest pass from Drogba.
The pair then switched roles and Kalou teed up a one-on-one chance for his fellow Ivorian with a glorious pass but Foster narrowed the angle expertly to pull off the first of a series of impressive saves.
Despite Chelsea's early promise it was the one change that Birmingham had made to their starting XI that proved the game's decisive moment.
Bowyer, only selected because of an ankle injury to Craig Gardner, was afforded the freedom of the penalty box on 17 minutes and the 33-year-old rolled back the years to burst through and coolly slot past Cech.
Although the goal came through the heart of the much-talked-about Chelsea defence, it was the midfield's failure to track Bowyer's run that allowed him to get on the end of Jerome's astute nod down.
Chelsea continued to dictate the terms, though, and the chances continued to come - mainly for Drogba.
First the striker forced a staggering save from Foster, who dived low to his left to keep out the striker's fierce close-range downward header from Nicolas Anelka's cross.
Foster also denied Drogba from a deflected free-kick and then last season's Premier League top scorer saw his sensational header crash back off the corner of post and bar and to safety.
Ashley Cole also forced a decent block from Foster at his near post after exchanging passes with Kalou - and Ivanovic and Alex and both headed over from Malouda corners.
The only noteworthy opportunity at the other end almost led to a freak goal for Jerome when an Alex clearance rebounded off the striker but went just wide.
Alex McLeish's side tightened up after the break, standing off Chelsea and letting them have possession until the final third.
The tactics worked for 30 minutes as Chelsea, still desperately missing Frank Lampard and Michael Essien at the heart of the midfield, dominated possession but barely threatened the home goal.
A rare threat on goal from Carlo Ancelotti's men saw the excellent Roger Johnson make a last-ditch challenge to prevent Ramires firing at goal and although Chelsea screamed for a penalty, referee Mark Halsey seemed to get his call spot-on.
That signalled the start of a frantic last 15 minutes and Drogba saw another free-kick saved by Foster while Kalou headed wide.
Birmingham's excellent defensive organisation was being stretched to the limit as Chelsea piled forward.
Proud McLeish praises keeper Foster
Ivanovic had the pick of the chances but his towering header from Malouda's cross was somehow beaten away by the inspired England keeper.
But there was no late boost and Chelsea slipped to successive league defeats for the first time in four-and-a-half years after a miserable week in which assistant manager
Ray Wilkins was also sacked.
And the home side went on to earn only their second league success in 12 games and their first league win over Chelsea since 1980.
90:00+4:31 The referee blows for the end of the match.
90:00+3:50 Corner taken by Daniel Sturridge.
88:49 A cross is delivered by Florent Malouda.
88:42 Nicolas Anelka crosses the ball, clearance by Scott Dann.
87:35 Corner taken short by Florent Malouda.
86:06 Centre by Florent Malouda, Header by Salomon Kalou from deep inside the penalty area misses to the left of the goal.
84:37 Jose Bosingwa fouled by Keith Fahey, the ref awards a free kick. Mikel restarts play with the free kick. The ball is swung
over by Florent Malouda.
84:37 Booking The referee books Keith Fahey for unsporting behaviour.
83:59 Jose Bosingwa produces a cross, clearance made by Stephen Carr.
81:58 The ball is crossed by Florent Malouda, Shot from deep inside the area by Alex clears the crossbar.
81:23 Cameron Jerome challenges Mikel unfairly and gives away a free kick. Mikel restarts play with the free kick.
80:03 Florent Malouda crosses the ball, Ben Foster makes a save.
78:50 The ball is crossed by Daniel Sturridge.
77:24 Liam Ridgewell challenges Jose Bosingwa unfairly and gives away a free kick. Free kick crossed left-footed by Florent Malouda,
clearance made by Roger Johnson.
77:24 Booking Liam Ridgewell is booked.
75:22 The ball is sent over by Salomon Kalou, Roger Johnson makes a clearance. Corner taken by Florent Malouda, Branislav Ivanovic
takes a shot. Save by Ben Foster. Branislav Ivanovic produces a left-footed shot from close in that goes over the bar.
74:56 Salomon Kalou takes a shot. Roger Johnson gets a block in.
72:44 Inswinging corner taken by Florent Malouda, Ben Foster makes a save. Florent Malouda takes a shot. Barry Ferguson gets a block
in. Corner taken left-footed by Florent Malouda, Scott Dann makes a clearance.
71:22 Substitution Daniel Sturridge replaces Ramires.
71:22 Substitution Alexander Hleb is brought on as a substitute for Nikola Zigic.
Correction - 71:03 The ball is crossed by Nicolas Anelka, Headed effort from inside the area by Salomon Kalou misses to the left of the target.
71:03 Didier Drogba sends in a cross, Headed effort from deep inside the penalty area by Salomon Kalou misses to the left of the
70:29 Keith Fahey delivers the ball, save by Petr Cech.
69:00 Liam Ridgewell is penalised for a handball. Salomon Kalou restarts play with the free kick. Shot by Didier Drogba. Save by
68:03 Jose Bosingwa has a shot on goal from outside the area which misses left.
65:46 Cameron Jerome challenges Branislav Ivanovic unfairly and gives away a free kick. Ashley Cole restarts play with the free
64:15 Substitution Paulo Ferreira leaves the field to be replaced by Jose Bosingwa.
61:27 Effort on goal by Salomon Kalou from deep inside the area goes harmlessly over the bar.
60:01 Unfair challenge on Sebastian Larsson by Ramires results in a free kick. Free kick taken by Ben Foster.
59:35 Outswinging corner taken left-footed by Florent Malouda, Cameron Jerome manages to make a clearance.
57:36 Inswinging corner taken left-footed by Florent Malouda.
55:49 Paulo Ferreira delivers the ball, save made by Ben Foster.
54:38 Corner taken by Sebastian Larsson, Petr Cech makes a comfortable save.
54:22 The ball is crossed by Liam Ridgewell, clearance by Alex.
52:28 Nikola Zigic gives away a free kick for an unfair challenge on Mikel. Free kick taken by Petr Cech.
51:58 Salomon Kalou is penalised for handball and concedes a free kick. Free kick taken by Petr Cech.
50:15 Salomon Kalou produces a cross, save by Ben Foster.
49:59 The ball is sent over by Paulo Ferreira.
48:10 Liam Ridgewell challenges Mikel unfairly and gives away a free kick. Free kick crossed left-footed by Florent Malouda from
left wing, clearance by Liam Ridgewell.
47:25 Inswinging corner taken left-footed by Florent Malouda from the right by-line.
46:17 The ball is sent over by Ashley Cole.
45:01 The referee starts the second half.
45:00+3:13 The referee calls an end to the first half.
45:00+2:13 Nicolas Anelka has an effort at goal from outside the box which goes wide right of the goal.
45:00+0:42 Foul by Roger Johnson on Alex, free kick awarded. Direct free kick taken by Petr Cech.
44:54 Centre by Cameron Jerome, Ashley Cole gets a block in. Outswinging corner taken from the right by-line by Sebastian Larsson,
Alex makes a clearance.
43:22 The ball is sent over by Ramires, Stephen Carr manages to make a clearance. Florent Malouda takes a outswinging corner from
the left by-line to the near post, clearance by Roger Johnson.
39:59 The ball is swung over by Ashley Cole, clearance made by Stephen Carr.
37:14 The ball is sent over by Florent Malouda, Didier Drogba takes a shot. Ramires produces a left-footed shot from deep inside
the six-yard box which goes wide of the left-hand post.
36:28 Inswinging corner taken left-footed by Florent Malouda played to the near post, Sebastian Larsson makes a clearance.
35:17 Scott Dann challenges Salomon Kalou unfairly and gives away a free kick. Didier Drogba produces a strike on goal direct from
the free kick, save made by Ben Foster.
33:14 Outswinging corner taken by Florent Malouda from the left by-line, Alex has a headed effort at goal from close range which
goes wide left of the target.
32:04 Inswinging corner taken by Sebastian Larsson from the left by-line played to the near post, clearance by Florent Malouda.
31:31 Keith Fahey fouled by Nicolas Anelka, the ref awards a free kick. Sebastian Larsson restarts play with the free kick.
30:28 Nicolas Anelka takes a shot. Ben Foster makes a comfortable save.
28:24 Ashley Cole takes a shot. Ben Foster makes a save. Outswinging corner taken left-footed by Florent Malouda from the left by-line,
Branislav Ivanovic produces a header from deep inside the six-yard box that clears the bar.
24:02 Inswinging corner taken by Florent Malouda, Roger Johnson manages to make a clearance.
23:36 Corner from right by-line taken by Florent Malouda.
23:18 Centre by Nicolas Anelka, Didier Drogba has an effort at goal from 6 yards. Fantastic save by Ben Foster.
21:47 Didier Drogba takes a shot. Save made by Ben Foster.
21:22 The ball is sent over by Mikel, clearance made by Liam Ridgewell.
19:17 Unfair challenge on Nicolas Anelka by Liam Ridgewell results in a free kick. Free kick crossed by Florent Malouda, Sebastian
Larsson makes a clearance.
18:37 The ball is delivered by Nicolas Anelka, Stephen Carr manages to make a clearance.
16:46 The ball is delivered by Sebastian Larsson. Cameron Jerome provided the assist for the goal.
16:46 GOAL - Lee Bowyer:Birmingham 1 - 0 Chelsea Lee Bowyer scores a goal from inside the box to the bottom left corner of the goal. Birmingham 1-0 Chelsea.
15:03 Outswinging corner taken left-footed by Florent Malouda, clearance made by Cameron Jerome.
12:54 The ball is delivered by Nicolas Anelka, Header on goal by Didier Drogba from inside the box goes harmlessly over the target.
10:27 Florent Malouda produces a cross, Shot from inside the area by Branislav Ivanovic clears the bar.
9:06 Salomon Kalou takes a shot. Scott Dann gets a block in.
5:18 Didier Drogba takes a shot. Ben Foster makes a fantastic save.
3:21 The ball is delivered by Florent Malouda.
2:31 Short corner worked by Sebastian Larsson.
0:55 The ball is sent over by Ashley Cole. Salomon Kalou produces a right-footed shot from close range which goes wide of the left-hand
0:00 The match has kicked off.
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