Xiao's victory increased the possibility of snooker's first ever all-Chinese ranking final, as Ding Junhui plays Barry Hawkins in the second semi at the £425,000 event.
Breaks of 64 and 96 helped 24-year-old Xiao take a 3-1 lead over Holt, in a match which saw both players competing in the last four of a ranking event for the first time.
A high-quality contest saw Holt recover to 3-3 with runs of 113 and 64, before Xiao regained the lead with a 111. The vital eighth frame came down to the colours and Holt was able to get only one of the two snookers he needed as he slipped 5-3 behind.
And Xiao, who is based in Gloucester and coached by Terry Griffiths, finished in style with a superb 127.
"I found more and more enjoyable moments in competition and I'm growing fast at the moment," said Xiao. "I managed to stay calm during the whole match. I think it's important to give all my attention to the match. I can achieve anything if I do so.
"I'm confident now and I'm going to lift the trophy tomorrow, whoever I'm going to play. This is what I've been desperate to do for years. It's not done if I lose. I have one more match to play, which will be my biggest stage in my career."
Holt said: "I can't say I threw it away. I felt good but I didn't really have chances to get on top. I felt as if I was more comfortable and he was more nervous. But I couldn't get in front, and towards the end he potted some great balls.
"I've got to take the positives out of this week but I'm disappointed because I thought I could have won it. I have proved that I can play out there."
