Australia's Rachel Teske finished alone in third place at 9-under-par 279. Samantha Head and Marnie McGuire were two shots further back at 7-under-par 281.
McKay was four shots off the lead to start the day and didn't get things going until late on the outward half. She picked up her first birdie of the day at the par-4 eighth and followed that with a birdie at the ninth to make the turn at 8-under.
After a bogey at the 12th, the 27-year-old caught fire on the back nine with a stretch of four consecutive birdies starting at the par-4 13th to surge to the top of the leaderboard. McKay parred the two remaining holes to earn her first career victory on the Ladies European Tour.
'I can't believe it,' said McKay. 'I can't believe it's finally happened, it's great. This has been my dream. I've just always wanted to win a professional event.'
Davies, who was at the top of the leaderboard all week and aiming for her second straight victory on the Ladies European Tour, jumped out of the gate with back-to-back birdies from the first. She found trouble with a bogey at the ninth, however, and dropped another shot at the 13th.
The 39-year-old recovered momentarily with a birdie at the 14th but it was not enough to withstand McKay's charge.
'To make those four birdies when it counted, that was something special and I couldn't match it,' said Davies, who won last week's ANZ Ladies Masters. 'I didn't realize it was her maiden victory, she's a good player and I couldn't believe she hadn't won before.'
Australian rookie Rebecca Coakley finished alone in sixth place at 6-under-par 282. She was followed by Beth Bauer, Catriona Matthew, Patricia Meunier- Lebouc, Alison Nicholas, Lorena Ochoa, Suzann Pettersen and Iben Tinning at 5-under-par 283.
Karrie Webb, who won this event in a playoff last year, finished eight shots off the lead in a group at 3-under-par 285.