The 28-year-old Holzer produced a flawless second run to finish in two minutes, 14.91sec. Austria's Christian Mayer, who led after the first run, finished second in 2:15.15. Mayer, 26, won the giant slalom at the same venue last year.
"I feel a little strange being ahead of the Austrians," said Holzer. "They are so strong. I still can't believe it."
The biggest surprise of the day was that of overall World Cup leader Hermann Maier, who failed to live up to expectations, finishing only 20th. "I can surprise people in both good and bad ways," Maier said. "Sometimes these things happen." The 1998 overall World Cup winner, Maier has won four races this season and was one of the race favourites. "It was a difficult course today that didn't suit my style," Maier added. "But I am confident I'll do better in the next races in Austria."
Austrian Stephan Eberharter, who led the World Cup giant slalom standings going into the race, finished 16th and slid to fourth in the standings. Switzerland's Michael Von Gruenigen, the world giant slalom champion, finished eighth.
Holzer's last victory was in 1992 when he won a super-G in Garmisch, Germany. His skiing this season has been steadily improving and at the last giant slalom race in Alta Badia, Italy, he was second. "I am 28 so it's time I either make it or go home," Holzer said. "The only thing I have changed is that I have become more aggressive."
The men's racing continues tomorrow with a World Cup slalom.
Norwegians Espen Bjervig and Bente Martinsen won the men's and women's races yesterday in the first World Cup cross-country event to be held in Estonia. The competition was threatened by a lack of snow, and went ahead only after Estonian soldiers spread artificial snow on the hilly 5km trail, making for a rough and often icy route.
Bjervig finished the 15km race in 40min 8.6sec, nearly 40 seconds ahead of Finland's Mika Myllyla. Sweden's Anders Bergstrom was third.
The victory boosted Bjervig to fourth in the overall standings. Countryman Bjorn Daehlie remains at the top, although he did not compete at Otepaa. Mathias Fredriksson remains second in the standings after an eighth-place finish yesterday.
Martinsen won the 10km classical race in 30:08.6, more than 30 seconds ahead of Sweden's Antonina Ordina. Kristina Smigun of Estonia was third.