Au, the 19-year-old world No46 who upset top-20-ranked Australian Kasey Brown in this month's Australian Open final, fought back from a game down to lead 2/1 before Kheirallah, the world No18, forced a decider.
 
After romping to a 7-1 lead, Au had match-balls from 10-4 as her higher-ranked opponent produced a flurry of winners to reduce the deficit to 8-10.
 
But a sensational reverse backhand drop concluded matters for Au who celebrated a magnificent 3-11, 11-8, 11-7, 8-11, 11-8 win after 68 minutes.
 
"I was a bit nervous in the middle but because I had nothing to lose I didn't worry and I played my best," said Au.  "I'm a bit tired so my fitness has to get better."
 
Au now faces former world champion Vanessa Atkinson, the second seed from the Netherlands who beat England's unseeded Lauren Siddall 11-1, 12-10, 4-11, 8-11, 11-8.
 
Local interest in the semis will be led by Alexandrian Raneem El Weleily, the fourth seed who beat Dutch opponent Orla Noom 11-9, 11-3, 11-3.  El Weleily will face favourite Rachael Grinham, the Cairo-based Australian who overcame English qualifier Laura Hill 11-4, 12-14, 11-8, 11-3.

More photos below
 
1st round:
[1] Rachael Grinham (AUS) bt Laura Mylotte (IRL)  11-8, 11-3, 11-8
[Q] Laura Hill (ENG) bt [5] Sarah Kippax (ENG)  11-8, 11-9, 11-13, 14-12
[4] Raneem El Weleily (EGY) bt [Q] Heba El Torky (EGY)  11-3, 11-4, 10-12, 11-9
[7] Orla Noom (NED) bt Elise Ng (HKG)  11-5, 11-5, 11-7
Annie Au (HKG) bt [6] Christina Mak (HKG)  11-6, 11-7, 11-5
[3] Engy Kheirallah (EGY) bt [Q] Eman El Amir (EGY)  11-3, 11-8, 11-4
Lauren Siddall (ENG) bt [8] Alana Miller (CAN)  10-12, 11-5, 11-7, 11-8
[2] Vanessa Atkinson (NED) bt [Q] Nour El Tayeb (EGY)  7-11, 11-9, 11-5, 8-11, 11-5

Quarter-finals:
[1] Rachael Grinham (AUS) bt [Q] Laura Hill (ENG)  11-4, 12-14, 11-8, 11-3 (45m)
[4] Raneem El Weleily (EGY) bt [7] Orla Noom (NED)  11-9, 11-3, 11-3 (23m)
Annie Au (HKG) bt [3] Engy Kheirallah (EGY)  3-11, 11-8, 11-7, 8-11, 11-8 (68m)
[2] Vanessa Atkinson (NED) bt Lauren Siddall (ENG)  11-1, 12-10, 4-11, 8-11, 11-8 (47m)

Semi-final line-up:
[1] Rachael Grinham (AUS) v [4] Raneem El Weleily (EGY)
[2] Vanessa Atkinson (NED) v Annie Au (HKG)