Birmingham's hopes of gaining automatic promotion back to the Barclays Premiership were dealt a severe blow as a mistake by central defender Martin Taylor gifted Burnley midfielder John Spicer a late winner.
Taylor, who had signed a new three-year contract on Friday, lost possession to Spicer who crashed an 80th minute drive past Blues 'keeper Colin Doyle for his first goal of the campaign.
Steve Bruce's side would have gone back to the top had they claimed the three points but their Achilles heel - a failure to perform at their best against sides in the bottom half of the table - again proved costly.
Blues had produced one of their best performances of the campaign to overcome Coventry the previous weekend but on this occasion they lacked the creative spark to break down the Clarets.
It was only the second time they had failed to score in front of their own fans in the league this season.
Burnley had clearly gained confidence from their 4-0 win over Plymouth in midweek which had ended a run of 19 games without a victory.
And this hard earned point was another important step forward in their bid to avoid dropping into League One.
Gary McSheffrey, back in the Blues side after completing a three-game ban, made an early incisive break down the left flank but his low cross was just behind Rowan Vine who was unable to get his shot on target.
Burnley goalkeeper Brian Jensen was fortunate to escape with only conceding a free-kick when he brought Nicklas Bendtner down just outside the penalty area after the Denmark keeper had taken advantage of defensive slackness.
Jensen saved bravely at the feet of Vine after a headed back pass from Steve Jones almost played him into trouble.
Bendtner looked sharp in the opening stages and one superb flick played in McSheffrey but he was driven out wide by Jensen and his eventual low cross was cleared.
Home defender Radhi Jaidi had scored the opener against Coventry and the ex-Bolton defender came close to breaking the deadlock again.
Jaidi timed his run perfectly to meet Larsson's free-kick but he only got the faintest of touches onto his header which flew straight at Jensen.
Burnley's best chance of the first half came in injury-time when Paul McVeigh could only half-hit his shot at Colin Doyle from close range.
The visitors started the brighter after the interval and the home fans soon began chanting for the introduction of DJ Campbell after his two goals against Coventry - and he eventually replaced Mehdi Nafti after 58 minutes.
The former warehouse worker quickly made his presence felt by beating the offside trap to meet Mathew Sadler's chip forward but he volleyed over the crossbar.
Vine came as close as anyone to finding a way through after 74 minutes when his low cross-shot beat the dive of Jensen but flew inches wide.
But six minutes later Taylor's error allowed Spicer a clear run at goal - and he made no mistake.
Teams:
Birmingham Doyle, Kelly, Jaidi, Martin Taylor,Sadler (Danns 85), Larsson, Johnson, Nafti (Campbell 58),McSheffrey, Bendtner (Jerome 76), Vine.
Subs Not Used: Maik Taylor, Muamba.
Booked: Larsson, Nafti.
Burnley Jensen, Duff, Thomas, Caldwell, Harley, Elliott,James O'Connor, Djemba-Djemba, Jones (Coughlan 88),Gray (Akinbiyi 90), McVeigh (Spicer 67).
Subs Not Used: Coyne, McCann.
Booked: Caldwell.
Goals: Spicer 80.
Att: 28,777
Ref: N Miller (Co Durham).