Malawi are ranked 153rd in the world, 116 places below the pre-WAFCON favourites and record 10-time champions Nigeria, who bowed out in the quarter-finals.
Debutants Malawi took advantage of Algerian Morgane Belkhiter being red-carded for a last-defender foul midway through the first half to build a 2-0 half-time lead.
Captain Tabitha Chawinga struck with an overhead kick on 33 minutes after a corner and Temwa Chawinga rounded goalkeeper Chloe N'Gazi to score one minute into added time.
Having scored twice, Malawi were also reduced to 10 players when Rose Kadzere was sent off for a studs-up tackle just before the break.
Algeria pulled one goal back on 60 minutes through Ikram Adjabi only for Tabitha Chawinga to restore the two-goal advantage with a solo goal after 76 minutes.
Kansas City-based Temwa Chawinga has scored five goals in the marquee African women's football tournament and Tabitha from French club Lyon four.
After conceding a third time, there was no way back for Algeria, who must settle for the third-place play-off on Saturday.
On Sunday, Malawi will face Morocco or Cameroon, who meet in the second semi-final later on Wednesday, in the final with a record two-million-dollar first prize on the line.
By reaching the semi-finals, Malawi, Algeria, Morocco and Cameroon have qualified for the 2027 Women's World Cup in Brazil.
See all the stats from the match here
WAFCON 2026
The 2026 Women's Africa Cup of Nations (WAFCON) is taking place from July 26th to August 16th in Morocco, across venues in Rabat and Casablanca. The continent's 16 best sides competed in groups of four before the knockout stages commenced on August 8th.
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