Broken to start the third set, sixth-ranked Svitolina stormed home, winning six straight games to triumph 6-3, 3-6, 6-1.
She claimed just her second career victory in eight meetings with the Belarusian star, whose first-serve struggles and 35 unforced errors proved too much to overcome.
The match concluded round robin play in the elite season-ending event. Earlier Friday, French Open champion Mirra Andreeva capped an unbeaten run through the group stage with a 6-2, 6-1 victory over Diana Shnaider.
It was a lackluster end to a disappointing season for Sabalenka. She won three tournaments, including the prestigious "Sunshine Double" of Indian Wells and Miami in March.
But she finished the year without a Grand Slam title, losing in the finals of both the Australian and US Opens, and lost her world number one ranking to Elena Rybakina.
After an error-strewn first set Sabalenka steadied in the second, racing to a 5-1 lead. Broken as she served for the set Sabalenka held on to force the third and looked on the ascendant when she broke again for a 1-0 lead.
But the errors were piling up again, and Svitolina took advantage. Sabalenka saved three match points in the final game, Svitolina twice responding with an ace before sealing the win with an emphatic forehand winner.
"It was an extremely tough match, especially mentally," said Svitolina, who continues her campaign for a second WTA Finals crown to go with the one she won in 2018.
"I was just trying to play one point at a time and find my game, find the fighting spirit until the end ... she gave me a few chances here and there so I could find my shots."
Mirra Andreeva cruises past Diana Shnaider
Andreeva, already assured of a semi-final spot as a group winner, needed just 56 minutes to beat Shnaider, a late replacement for ailing Karolina Muchova.
The 19-year-old Russian, ranked third in the world, next faces fifth-ranked American Jessica Pegula.
She'll be playing Pegula for the first time just a week after Pegula was caught by a practice court microphone describing Andreeva as a "diva".
Pegula, who was unaware that the microphone could pick up her comments, quickly apologized and said Andreeva had taken the controversy in stride.
"She was totally fine, and she was like 'I'm a diva,'" Pegula said. "Like she embraces it, and so it was kind of funny."
The WTA apologized over the incident in which microphones installed to pick up general court sounds for a WTA livestream recorded conversation between Pegula and her coach.
Pegula said she knew that even as both players tried to downplay the repercussions the incident would hang over their match.
"The storyline writes itself," she said. "I think it maybe gets fans interested ... whatever works. We're all good, but if it gets people to watch I think it's fine."