Li, who beat Kim Clijsters in last year's Sydney title match, stopped Kvitova 1-6, 7-5, 6-2 by winning more than two-thirds of the points on serve after the first set.
Kvitova, No. 2 in the world rankings, dominated the first set with three breaks and losing just five points in three service games. But Li turned the match around by winning both her break chances in the second set and 2-of-4 in the third.
The loss derailed Kvitova's chance to overtake Caroline Wozniacki as the world No. 1-ranked women's player. A tournament title in Sydney would have boosted Kvitova ahead of the Wozniacki.
No. 3-ranked Victoria Azarenka topped seventh-seeded Agnieszka Radwanska 1-6, 6-3, 6-2 in the other semifinal. She didn't lose her serve after the first set.
Li has a 4-2 series edge over Azarenka and won two of their three meetings in 2011. Azarenka is seeking her ninth overall and fourth since last April WTA title. Li has five championships -- two last year -- to her credit.
Charlize Theron not engaged to Sean Penn 'yet'
Pregnant Mila Kunis wins 'Best Villain' at MTV Movie Awards