After dropping the first set, Taufik needed six game points before finally clinching the second and looked to be in control at 18-13 in the decider.
However, the lanky, elegant Sridhar was not to be denied against the 2005 world champion. Two net cords in favour of the Indian levelled the score at 19-19 and when Taufik smashed long on the next point, the writing was on the wall.
Bravely, the eighth-seeded Taufik managed to save one match point but succumbed at the next to become the tournament's biggest casualty to date.
Sridhar told reporters: "It's the biggest win in my career so far and I'm happy it came in a big event like the world championships."
Sridhar, who lost in the in the first round of last year's worlds in Madrid, said: "I think I played quite well today... I don't think he played too badly but he has played a lot better."
Defending champion Lin Dan of China was seeking
A big crowd was expected at the Putra Stadium later for the first appearances of local hopes Lee Chong Wei, seeded two in the men's singles, and men's doubles pairing of Koo Kien Keat and Tan Boon Heong.
Earlier, Poland had a rare glimpse of badminton limelight when unseeded men's doubles pair Michal Logosz and Robert Mateusiak beat last year's silver medallists Anthony Clark and Robert Blair of England 21-16 21-16 in their second round match.
Logosz told Reuters: "It's one of our best results ever... tomorrow we want to play as well as we did today."
Poland had looked like pulling off another upset on the adjacent court when women's singles player Kamila Augustyn took the first set off 16th-seed Tracey Hallam, but the Englishwoman fought back to win 15-21 21-16 21-11.
Saina advances
In women singles, Saina Nehwal also scored an upset win over 13th seed Juliane Schenk 21-16 21-10 and the win pits her against fourth seed Pi Hongyan of France in the pre-quarters.
Photograph: Tengku Bahar/AFP/Getty Images
Hidayat captures world championship
Hidayat wins men's singles badminton
Hidayat out of World Championships