Wu set the tone for his victory with a commanding break of 112 in the opening frame, and though the following four were more nervy as both players struggled for rhythm, a break of 84 in the fifth put Wu within one frame of the semi-finals.
The 22-year-old duly delivered with a break of 97 to secure a 6-0 victory and advance to the semi-finals, where he will meet either Neil Robertson or Kyren Wilson.
"It is definitely a dream for me from since I was a little kid," Wu told BBC Sport.
"I just told myself to enjoy every moment of this match and give my best, and obviously it is a great performance."
Wu revealed his father had surprised him by making an appearance at Alexandra Palace to watch Friday's quarter-final.
"It came as a big surprise because I didn't know he would show up today," he said.
"We had an agreement that if I made the final he would come but he messaged me this morning saying he was already at the hotel and would be at the match today."
It was also a debut tournament for Xiao, who beat three-time champion Mark Selby in the first round and is already looking forward to coming back for another go at the iconic tournament.
"It was like an exhibition for him today," the Wuhan Open champion told BBC Sport.
"He played so good. I had chances to win the first, second and third frames.
"I missed some balls and in the last two frames I didn't get a chance so congratulations to him. Hopefully next year I can come back again."
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