The fourth-seeded Russian clinched a berth in the prestigious Tennis Masters Cup at Sydney in two weeks.
Meanwhile, No. 8 Tim Henman of Britain wasted his opportunity to qualify for the season-ending $3.7 million event, falling to Julien Boutter of France, 6-4, 6-3, in one of the day's five upsets.
Kafelnikov got the best of Philippoussis for the fifth time in eight lifetime encounters to claimed a spot in the Tennis Masters Cup for the seventh straight year.
"This is very important for me. It means that I've had another successful year," Kafelnikov said. "This is what we are basically competing for the whole year -- to qualify for the (Tennis Masters Cup), where the top eight players compete."
Having reached the semifinals in five of his last six events, Kafelnikov continued his quest to make the final four at Paris for the first time since 1998. He was the runner-up here in 1996 and reached the semifinals the following two years.
"Now the pressure is off a bit and I hope I can do well here in Paris," Kafelnikov said. "It would be about time to win a Tennis Masters Series event."
Despite reaching the final of four Tennis Masters Series events, Kafelnikov has yet to win one. He advanced to the semifinals of the Tennis Masters Series events at Indian Wells and Stuttgart earlier this year.
The 27-year-old from Sochi increased his haul of ATP titles to 24 this year with triumphs at the Marseille Open in February and the Kremlin Cup earlier this month.
In the third round, Kafelnikov meets Spain's Albert Costa, who surprised 14th seed Guillermo Canas of Argentina, 7-6 (7-4), 6-4.
After adding a second trophy to his 2001 resume last week at the Swiss Indoors, Henman needed a strong outing here to earn a spot in Sydney for the first time since 1998. But he was outmuscled as he was beaten by Boutter for the second time this season.
"I found it very difficult to have any influence in the match," Henman said. "He's so aggressive, so powerful with his shots. On his serve, you're just trying to do your best to get the ball back in play and see what happens."
Boutter also beat Henman in their encounter at the Tennis Masters Series tournament at Rome in May.
Boutter's next opponent will be Czech Jiri Novak, who upset the other No. 10 Roger Federer, 6-4, 6-7 (4-7), 7-6 (7-2). Federer lost to Henman in the final of the Swiss Indoors.
With Henman and Federer falling, the final Tennis Masters Cup berth likely will go to either Tommy Haas of Germany or Marat Safin of Russia.
Haas rolled over Ivan Ljubicic of Croatia, 6-3, 6-4, to reach the third round. He has won two of his last three tournaments -- the CA Tennis Trophy in Vienna and the Tennis Masters Series at Stuttgart.
"Every Masters Series event is important," Haas said. "It's nice to start off with a good match and a victory."
Haas' main competition for the final spot in Sydney is Safin, the fifth seed. The Russian -- the 2000 champion and 1999 runner-up here -- outlasted Slovakia's Karol Kucera, 7-6 (7-2), 5-7, 6-4, and will take on Andreas Vinciguerra in the next round.
No. 13 Andy Roddick of the United States and No. 16 Fabrice Santoro of France were the other two seeded players to stumble Wednesday.
Sjeng Schalken of the Netherlands rallied past Roddick, 4-6, 6-3, 7-5, to avenge his defeat in the final of the Legg Mason Tennis Classic at Washington in August.
Next up for Schalken will be Brazil's Gustavo Kuerten, the top seed who leads the ATP with six titles in 2001.
Morocco's Hicham Arazi eliminated Santoro, 6-4, 6-4, to set up a third-round match against No. 3 Juan Carlos Ferrero of Spain.