SYDNEY, February 16, 2014 (AFP) - The veteran Australian came from five behind at the start of the day to win by a shot from Choi, the overnight leader who shot a course record 10-under 62 in the third round.
Webb, 39 and a former world number one, thrived in gusty conditions to take her first home Open crown since 2008, finishing with a final round four-under 68.
She faced a tense wait as Choi -- chasing her first US LPGA title -- missed a birdie putt on the par-five 18th which would have forced a playoff.
"It was nerve-racking. I actually thought once Chella had that putt on the last -- I've played with her quite a bit and I was expecting that one to go in," said a "very proud" Webb.
"I was happy to see that the conditions were going to be a little tougher today because I felt like that gave me a chance to make up some ground."
World number eight Webb, disqualified from her title defence of the Australian Ladies Masters last week after signing an incorrect scorecard, said she "got off to a great start" with birdies on the first two holes.
"I just did a really good job mentally today. Probably I can't think of another time that I've held myself together as well as that."
She got her break on the par-4 11th, where she birdied a huge 45-foot downhill putt to take the lead.
"I hadn't even got the ball to the hole on that green all week so yeah, it was nice to see that one drop and really got things going."
Choi, world number 28, started with a birdie but then hit her ball out of bounds on the second hole for a double-bogey six and was unable to birdie again -- crucially missing on the 18th in a strong cross-wind.
New Zealand sensation and world number four Lydia Ko, 16, finished tied third at 10-under (73) with France's Karine Icher (71) and American Paula Creamer (68).
Exciting Australian amateur Minjee Lee, 17, runner-up to Tiger Woods' niece Cheyenne at the Australian Ladies Masters, got off to a promising start with a 20-foot birdie putt on the first hole, but a double bogey on the par-4 12th cost her dearly.
Leading fourth-round scores in the LPGA Women's Australian Open at the Victoria Golf Club on Sunday:
276 - Karrie Webb (AUS) 71-69-68-68
277 - Chella Choi (KOR) 70-71-62-74
278 - Paula Creamer (USA) 68-69-73-68, Karine Icher (FRA) 69-68-70-71, Lydia Ko (NZL) 68-68-69-73
279 - Stacy Lewis (USA) 71-69-70-69, Jenny Shin (KOR) 74-67-66-72, Amelia Lewis (USA) 71-67-69-72, Morgan Pressel (USA) 69-68-70-72
280 - Gerina Piller (USA) 75-69-68-68
281 - Azahara Munoz (ESP) 68-70-73-70, Jessica Speechley (AUS) 71-67-70-73, Mi Hyang Lee (KOR) 72-67-68-74, Minjee Lee (AUS) 68-67-68-78