A stunning volley by Lee Collins deep into stoppage time denied Albion a return to the top of the table.
Loan goalkeeper Simon Royce seemed to have sealed victory for the Seagulls when he dived to turn a penalty from substitute Paul Simpson, also in injury time, on to a post.
But midfielder Collins struck in spectacular style from outside the box moments later to break Albion's hearts.
Peter Taylor's men seemed well on course for the points before a crowd of 5,419 at Bloomfield Road following first-half goals by Lee Steele and Nathan Jones.
But Blackpool stormed back after the break and substitute Ian Hughes reduced their arrears with a far post header on 55 minutes before Collins snatched victory from the Seagulls' grasp.
Meanwhile Bristol City, managed by former Albion midfielder Danny Wilson, are the new Division 2 leaders after a 3-1 win at Cardiff.
They are a point clear of Stoke, who drew 0-0 at Huddersfield, and Albion. Brentford have dropped from top to fourth with a 1-0 defeat at Tranmere.
Albion remain unbeaten in 11 League matches under Taylor.
Meanwhile, Taylor is hoping to sign Junior Lewis for the third time on a three month loan from his former club Leicester.
Taylor originally wanted to sign him for the rest of the season, but is prevented from doing so because the player is over 23.
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