The world No 1 had an opportunity to serve for the first set and went a break up in the second, before losing both to the determined 26-year-old Austrian.
Nadal re-grouped and took the third set, but Thiem showcased his fitness and shot-making prowess to capitalise on an early break in the fourth and eventually finished the job in another tie break after four hours and 10 minutes.
This defeat ends Nadal’s quest to equal Roger Federer’s record of 20 Grand Slam titles in Australia and brings his record against Thiem back to 9-5.
Thiem will now face Germany’s Alexander Zverev in the second semi-final on Friday after Zverev triumphed over Stan Wawrinka 1-6 6-3 6-4 6-2 earlier in the day.
The first semi-final will take place on Thursday at the Rod Laver Arena and will be the 50th career-meeting between Roger Federer and Novak Djokovic.
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