The Swede ended the tournament at 16-under-par 260. That was good enough for the tournament record. Miguel Angel Jimenez had set the old mark of 262 just last year.
Karlsson only needed to shoot even par in the final round to tie the European Tour record for lowest 72-hole score (258), but a balky putter was his undoing in the final round. He carded 32 putts in his final round
'It's nice, very nice, but it was a tough day today,' Karlsson admitted. 'There was a little bit more wind and it was not easy.'
He had established a tour record for lowest 54-hole score with a three-round total of 189. That total also bettered the tournament's 54-hole record by eight strokes.
Paul Broadhurst used a 1-under 68, that included a birdie at the last, to end alone in second place at 13-under-par 263. Jose-Filipe Lima's 64 tied for the low round of the day. The five-under score moved him into third place at minus-12.
Eight-time Order of Merit winner Colin Montgomerie took fourth place at 11-under-par 265 after a final-round 67. Johan Skold and Phillip Archer were one stroke further back at minus-10 at the Roman Road Course at Celtic Manor Resort.
Karlsson ran in a 25-footer for birdie on the third, his fourth in four days on the par-5. However, three-putt bogeys on four and six dropped Karlsson to 17 under.
The 36-year-old two-putted for par on the next three holes. Karlsson left himself 30 feet for birdie at the 10th, but instead three-putted for the third time for bogey.
Karlsson knocked his second shot over the green on 12 and was unable to get up and down for par. That bogey dropped him to 15-under, three strokes clear of Lima. Karlsson began to rebound with an 8-foot birdie putt on 13.
'After 12 holes, I wasn't worried at all. I was just trying to do my own thing,' Karlsson said. 'Obviously, I was struggling with the putter. You get a little bit tentative when you're leading and you don't get the ball to the hole, which leads to three-putting. I loosened up a little when I birdied the 13th.'
He rolled in a 7-footer for birdie on 15, then got up and down for birdie from over the 16th green to get back to minus-18 overall and even par for his round.
Karlsson came up short of the green at 17 and pitched to 8 feet. He missed that putt and also tripped to a bogey at the last, but held on for his sixth tour win.
'I did the same thing last time I won,' said Karlsson of his last win at the 2002 European Masters. 'I was leading by six with a couple holes to go and finished bogey-bogey. So I definitely have things to learn.'
With the win, Karlsson moves into the top-10 on the Ryder Cup points list. The last time he was this close, he finished 11th on the points list in 1999 and was passed over for a spot by then captain Mark James.
'It's a long time in the future, but it would a fantastic bonus if it happens,' Karlsson said of the possibility of making the Ryder Cup team. 'There are so many good players that have a shot at the team and there is a long way to go yet. It was heart-breaking not to make the '99 team, but I had to grow from there. I did win later on that year which was fantastic.'
Broadhurst entered the round at 12 under, but bogeys on three, five and 10 dropped him back to minus-9. He recovered with birdies on 11 and 14. The Englishman birdied 16 and 18, both for the fourth day in a row, to claim second place.
Lima carded four birdies and two bogeys on the front nine. Three more birdies on the back nine got him within three at 12 under, but he could only par the final two holes.
Bradley Dredge matched Lima's 64 in the final round. That helped Dredge climb into a share of seventh place at 9-under-par 267. He was joined there by Henrik Nystrom, Gary Orr, Marcel Siem, Lee Slattery, Graeme Storm and Simon Dyson. Jyoti Randhawa and Anthony Wall were one shot further back at minus-8.