Birmingham City are right back on course for automatic promotion after just about holding their nerve.
Blues looked set to breeze to victory when two goals inside four first-half minutes from Radhi Jaidi and Sebastian Larsson left Leicester flabbergasted. But a rousing second-half performance by the Foxes, inspired by the attacking threat of Iain Hume and Wolverhampton Wanderers old boy Shaun Newton, reached its crescendo when Blues old boy Geoff Horsfield left the bench for the final 20 minutes.
Horsfield gave it his all, using all his old tricks to make a nuisance of himself to Martin Taylor, winning the free-kick from which Newton's deflected shot pulled one back with eight minutes of normal time left.
And, it took a handful of top saves from Blues' young goalkeeper Colin Doyle, one of them a world-class effort to deny Nils-Eric Johansson, to keep out the frantic Foxes in a furious finale.
On a night when it was all about using their experience and keeping their heads against a Leicester side badly needing the points, it did not help Steve Bruce being without his captain.
Damien Johnson's hamstring injury, sustained early on in Saturday's win over Southampton, looks like keeping him out of this coming Sunday's trip to Molineux. But, even minus their skipper, there were plenty of cool heads to call on, none more so than Jaidi's. And, for the third time in five games, Blues had the crucial advantage of an early goal to settle them down.
Maybe Leicester's scouting reports on the threat of Jaidi from setpieces had been lost amidst the chaos of Rob Kelly being asked to clear his desk last week and Nigel Worthington coming in as caretaker manager.
But, bizarrely, when Fabrice Muamba won a right-wing corner, Gary McSheffrey picked out Jaidi at the far post and the big Tunisian nodded in his sixth goal of the season.
In a desperate, almost embarrassing attempt to drum up support from the locals, Leicester had dreamed up the idea of two former Filbert Street legends of comparatively recent vintage, Gerry Taggart and Steve Walsh, to go on the park before the game, grab the microphone and, as they say, "give it the big one".
But, even at their comparatively venerable age, given the lack of marking in the moderd-day Leicester defence, Walsh and Taggart would have been more use still in blue shirts.
Proof that oldies are still goodies came when, within three-and-a-half minutes of Jaidi's opener, Blues went 2-0 up thanks to a goal engineered by the ageless Andy Cole.
Picked out by a fine ball from Stephen Clemence down the left side, Cole turned his man and, despite attempts to pull him back by the shirt, Cole broke clear into the box, had the presence of mind to square across to the unmarked Larsson and the Swede ran in to slot home with ease.
It was the Swede's eighth goal of the season, but only his third in the league. And, just like his late winner against Crystal Palace in August and his only goal of the game to beat Cardiff City last month, not to mention his five cup goals, he has a handy habit of getting important ones.
Leicester did respond before the break as Iain Hume curled a right-foot shot just wide and Johansson was also off target with his header. But, for all their effort and especially that of their noisy fans after the break, it was Blues who came closest to extending their lead, Conrad Logan having to save with his legs from Cole and McSheffrey.
It looked as if Leicester had shot their bolt but their fans helped them rally and, after Doyle had kept out full-back Richard Stearman's header with a point-blank save, there was further inspiration for the home masses when 'The Horse' entered the fray.
This last throw of the dice almost brought instant dividends when he won a free kick on the edge of the box off Taylor and Doyle had to turn Hume's free-kick round the post. Then, from Newton's corner, Johansson's shot was saved by Doyle on the line.
Newton's gallop down the right was reminiscent of his best days in his first season at Wolves and, when Horsfield conned the Blues defence into winning another free kick on the eedge of the box, Newton's shot deflected in past a flat-footed Doyle.
Doyle fumbled Newton's corner, then reprieved himself when he held onto Hume's volley on the turne. But, despite Leicester throwing the kitchen sink at Blues, Bruce's men held on to sneak past Derby County. The Rams now have to beat doomed Luton Town at home on Friday night, or Blues will still be in second spot when they go to Molineux.
Scorers: Jaidi (15) 0-1; Larsson (19) 0-2; Newton (82) 1-2
LEICESTER CITY (4-4-2): Logan; Stearman, Johansson, Kisnorbo, Maybury (Horsfield 75); Newton, Jarrett, Wesolowski, Mattock; Hume, Fryatt (Cadamarteri 65). Subs: Henderson (gk), Hughes, Sheehan
BIRMINGHAM CITY (4-4-2): Doyle; N'Gotty, Jaidi, Taylor, Kelly; Larsson (Nafti 91), Clemence, Muamba, McSheffrey; Cole, Bendtner (Jerome 84). Subs: Maik Taylor (gk), Campbell, Vine
Referee: Lee Probert (Bristol)
Bookings: Blues - Larsson (timewasting), Nafti (encroachment)
Blues man of the match: Fabrice Muamba - another immense midfield display from the teenager.