It is believed to be the best finish a Kiwi on the LPGA Tour since Lynnette Brooky finished tied for 12th at the US Open in 2002.
Her win comes 20 years after another famous New Zealand golf win in Vancouver when the team of Phil Tataurangi, Michael Campbell, Grant Moorhead and Stephen Scahill won the Eisenhower World Amateur Team's Championship in 1992.
Ko, who began on an eight-under par total with rounds of 68, 68 and 72, was quickly into her work in the final round with a birdie on the second hole.
She added another at the sixth before dropping a shot at the par-four seventh to slip back to nine-under par total.
Meantime Choi matched her on nine-under par after three birdies and a bogey in her opening nine holes.
Ko had played the back nine beautifully all week, a cumulative eight-under par heading into the final round, and she delivered the defining stretch in the tournament.
The Srixon Academy player, who had been praised all week for her incredible composure by the international media, made four straight birdies from 10-13 and then added another on 15 to put the title beyond reach.
She held four-shot lead heading down the last and made bogey to win by three strokes.
Ko has had a phenomenal year in 2012.
In January, she made international headlines when she won the New South Wales Open in Australia at 14 to become the youngest player to win a professional tour event. Before that she was the youngest champion of the Australian Amateur.
Just two weeks ago she was the first New Zealand player to win the US Amateur and the second youngest in history.
In any other year, Ko would likely be a shoo-in for the Sportswoman of the year at the Halberg Awards in 2013 but will face tough competition from Olympic gold medallists Lisa Carrington and Valerie Adams.
Regardless, Ko has achieved something no other New Zealand golfer has. She will always be the first Kiwi golfer to win on the LPGA Tour and for now is the youngest champion in the tour's 62-year history.
Youngest golfers to win an LPGA event:
Lydia Ko, 2012 Canadian Women's Open (72-hole event) at 15 years, 4 months, 2 days.
Lexi Thompson, 2011 Navistar LPGA Classic (72-hole event) at 16 years, 8 months, 8 days.
Marlene Hagge, 1952 Sarasota Open (18-hole event) at 18 years, 14 days.
Marlene Hagge, 1952 Bakersfield Open (18-hole event) at 18 years, 2 months, 15 days.
Paula Creamer, 2005 Sybase Classic presented by Lincoln Mercury (72-hole event) at 18 years, 9 month, 17 days.
Morgan Pressel, 2007 Kraft Nabisco Championship (72-hole event) at 18 years, 10 months, 9 days.
Paula Creamer, 2005 Evian Masters (72-hole event), 18 years, 11 months, 18 days.
Amy Alcott, 1975 Orange Blossom Classic (54-hole event) at 19 years, 1 day.