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 created a host of chances to level, particularly before the break, with Didier Drogba going closest when his wonderful header hit the bar.
But the home side defended superbly in the second half to hold on.
Chelsea remain top of the Premier League table only by goal difference as Manchester United closed the gap with victory over Wigan.
And the result comes after a difficult week, in which Ray Wilkins was sacked as assistant manager.
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.
Chelsea were heavily criticised for a sloppy defensive display in the humbling 3-0 home defeat by Sunderland last week, and they began with the look of a side desperate to prove it was a mere blip.
The return of Alex at centre-half seemed to do the trick in restoring confidence, 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 home keeper Ben Foster narrowed the angle expertly to pull of 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, barely threatened.
A rare attack from Carlo Ancelotti’s men saw the excellent Roger Johnson make a challenge to prevent Ramires firing at goal and although Chelsea screamed for a penalty, referee Mark Halsey seemed to get his call spot-on.
Drogba saw another free-kick saved by Foster and Kalou headed wide.
Birmingham’s excellent defensive organisation then largely kept Chelsea at arm’s length – until a frantic finale.
Ivanovic had the pick of the chances as Chelsea piled forward but his towering header from Malouda’s cross was somehow beaten away by the inspired Foster.
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.
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