The Scot was in fine touch in the evening session, fighting back having trailed 5-4, but momentarily lost concentration during the presentation and dropped the trophy onto the table, much to the amusement of all in attendance at the Ricoh Arena.
Higgins won three of the four frames ahead of the mid-session interval to lead O’Sullivan 7-6.
O’Sullivan, the five-times world champion, posted the first century break of the final with 130 to level things up again.
However, world number five Higgins then returned runs of 76 and 86 to take him to the brink of the triumph, and another half-century break of 58 in the 17th frame saw the Scot through to secure the winner’s cheque of £100,000.
The late rally from Higgins, who edged out Ding Junhui in the best-of-11 semi-final, was the only time in the match one player was able to move clear.
Earlier, Higgins had won the first frame with a break of 75, but O’Sullivan levelled with a 68. The Scot moved ahead again only for O’Sullivan’s clearance of 88 to square things up again.
O’Sullivan, currently eighth in the world rankings, produced a break of 90 to take the lead for the first time, but Higgins responded with a 79, then a 65 which gave the Scotsman a 4-3 advantage.
Both players uncharacteristically missed easy blacks in an eighth frame which O’Sullivan edged with breaks of 61 and 27 – before the 40-year-old then gained the edge heading into the evening session of what had been a see-saw contest after Higgins missed a brown.