Samir Nasri had come off the bench to fire the Gunners in front 10 minutes from time.
Short lived joy: Goalscorer Samir Nasri is grabbed by Nicklas Bendtner
But Blues substitute Phillips enjoyed a stroke of luck in injury-time as the ball looped off him and over Manuel Almunia to level.
Arsene Wenger was greeted with boos from the Birmingham fans as he made his way along the touchline to the Arsenal dug-out, still disgruntled by his reaction to Martin Taylor's challenge on Eduardo which badly broke the Gunners striker's leg in 2008.
The Gunners began in confident fashion against a Blues side unbeaten at home since late September.
Tomas Rosicky won the first corner of the game but skipper Cesc Fabregas' centre was held comfortably by Blues keeper Joe Hart.
Pensive: Eduardo returns to St Andrew's two years after his horror injury
Birmingham midfielder Craig Gardner was high and wide with a 20 yard drive after a James McFadden free-kick had only been half cleared.
Theo Walcott then appealed optimistically for a penalty after a challenge from Liam Ridgewell and referee Howard Webb waved play on.
McFadden showed good skill in creating a yard of space just outside the Arsenal box but he dragged his powerful drive a couple of yards past the post.
The visitors knocked the ball around in trademark style although the final decisive ball was lacking in the opening quarter of an hour.
Alex Song became the first player to be yellow carded after 16 minutesfor bringing down McFadden, who had made an impressive start to the game.
Hart made the first meaningful save of the game a minute later when hecame quickly off his line to block a shot from Walcott after he had raced onto a long ball from Fabregas.
Up and away: Arsenal's Denilson battles with James McFadden
Gael Clichy was booked after 24 minutes for a foul on Craig Gardner.
This resulted in an unhappy Wenger exchanging words with the fourth official Anthony Taylor.
Jerome brought a save out of Almunia with a low 25-yard drive.
The former Cardiff striker then burst into the box but toe-poked a weak shot straight at Almunia when under pressure from Sol Campbell.
Wenger was becoming increasingly animated but the home side were more than holding their own against their title-chasing opponents.
Arsenal started the second half on the offensive and Hart saved a drive from Rosicky away to his right.
Then Abou Diaby made a good break into the City box but sent his shot straight at Hart.
Back came Blues and Barry Ferguson only just failed to connect with a ball into the near post from Gardner.
Full stretch: Birmingham goalkeeper Joe Hart dives in vain in a bid to stop Nasri's shot
Then, after 63 minutes, City defender Scott Dann was guilty of one of the misses of the season.
Ferguson's free-kick was met by Roger Johnson, whose shot back across goal at full stretch hit the post.
The rebound fell to Dann barely two yards out but he somehow contrivedto put the ball over the bar off his thigh.
Wenger made a double change with Samir Nasri and Andrey Arshavin replacing Rosicky and Walcott respectively.
Nasri was quickly involved in testing Hart with a low drive after being teed up by Arshavin.
Ferguson was then booked for a challenge on Nasri before the same player finally broke the deadlock 10 minutes from time.
Freak show: Wenger shows his despair after Birmingham's late equaliser
He was allowed time to cut in from the right and his low drive flew past the dive of Hart into the far corner of the net.
Gardner was booked for a foul on Diaby and Carr for bringing down Arshavin.
But just as Arsenal looked set for a vital win, substitute Phillips snatched a dramatic equaliser in injury time.
Phillips battled for the ball with Bacary Sagna, who kicked it into the the former Sunderland striker's face and Almunia could only get a hand to itas it ballooned into the net for a dramatic equaliser.
Squeaky bum time again: But Fergie predicts United will win title on last dayArsene Wenger can't forgive Martin Taylor for horror tackle on EduardoARSENAL FC