The second-seeded Sanchez Vicario held on for a 6-4, 3-6, 6-4 win over an error-prone Seles, who had beaten the Spaniard in all of their 10 previous meetings.
Even after Seles rallied from 0-3 to take a 4-3 third-set lead, Sanchez Vicario refused to fold and fought back brilliantly to take the dollars 110,000 (pounds 57,000) winner's prize.
Seles has now lost three successive finals, but the powerful Yugoslav, winner of the French and Australian Opens this year, later insisted her rivals were not closing in.
'It's totally my game being off. The other players are not catching up,' Seles, the defending US Open champion, said.
Sanchez Vicario now has her sights set firmly on Seles's US crown. 'I've never before got past the semi-finals,' she said. 'But I've improved my game and I have much confidence.'
While Seles struggled, the fortunes of the US Open's defending men's champion, Stefan Edberg, could not have been more different. The Swede's speed and pinpoint accuracy gave him a 7-6, 6-1 victory over MaliVai Washington in yesterday's final of the Volvo International in New Haven, Connecticut.
It was Edberg's first outdoor hardcourt title since winning the US title and only his fourth final and second title this year, the fewest since he won twice in 1989.
Washington took the first set to a tie-break and also had a break point in the first game of the second set, but Edberg came back to hold serve. He then broke Washington in the next game and the sixth game to win easily.
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