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The 24-year-old took over from world champion Lotte Friis mid-race and stormed away to win in 8:08.62, just 0.4s outside the championship record.
She is just the second individual New Zealand swimmer to win gold at the world short course championships, following Moss Burmester in 2008.
Boyle took a remarkable seven seconds off her own national record, and also broke the New Zealand record for the 400m, going through in 4:01.85 which was inside Melissa Ingram's record of 4:02.03 set in Tokyo last year.
"I was really, really happy," Boyle said. "It has always been a dream. It is something that you never really know if you can achieve so I think I am lucky to have had an opportunity like this.
"I am really glad that I kept myself in good track after the Olympics to take hold of this opportunity when it came."
Boyle said that she had not thought about the podium before the race.
"I wanted to improve my time. What I have learned over the years is that you don't know how fast people will swim at the competition. It was all about swimming my own race and improving my own time, especially here in a timed finals you never really know what is going to happen."
She knew she could not match the early world record pace of Friis.
"I saw her go out fast. I knew I had to stay strong. If I had followed her I wouldn't have done as well because it takes a lot of energy for me to go that fast. At the same time I didn't try to count myself out when I saw her so far ahead of me. It was a little bit expected.
"I could see myself catching her up and I told myself to keep going but I didn't know if there was someone ahead of her."
It was a poignant moment for her coach Mark Regan. As the former national coach of Denmark, he guided Friis to her Olympic medal but this morning (NZT) watched his new pupil win ahead of the Danish champion.
"It was pretty special. That was a really, really good swim by Lauren. It is not often you break two national records in the same race," Regan said.
"To come out of the training pool with no competition and go seven seconds faster than before just shows what a talent she is. We've worked hard and now Lauren is starting to believe."
It is New Zealand swimming's 11th medal in the world short course championship and just the third gold to go with Burmester's victory in the 200m butterfly at Manchester in 2008 and the men's medley relay victory at Rio de Janeiro in 1995.
Friis set a blistering early pace on world record schedule to open up a telling advantage, with the New Zealander leading the push to claw her back. The Danish swimmer led by two seconds at the 200m mark but Boyle edged ahead after 400m, with American champion Chloe Sutton and Great Britain Olympic finalist Hannah Miley.
Boyle paced herself superbly, churning out consistent splits between 30.27 and 30.62 to push clear, winning by more than two seconds from Friis with Sutton edging out Miley a massive seven seconds behind the Kiwi.
It was after midnight before Boyle had returned to the hotel following media commitments and doping control and that will be a real test as she is back in the pool for the 400m freestyle in the morning.
It was a day of records for the New Zealanders, with Australian-based Cantabrian Cameron Simpson breaking his national record to advance to the semifinals in the 50m freestyle. He clocked 21.62, which edged under his previous record set recently at a World Cup meet in Dubai.
He could not replicate that in the evening semifinal clocking 21.81 and failed to advance to the final. However, he has considerably improved his ranking after coming into the championships as the 20th fastest, and still has the 50m butterfly and 100m freestyle to come.
800m freestyle: Lauren Boyle (NZL) 8:08.62, 1 (NZ Record); Lotte Friis (DEN) 8:10.99, 2; Chloe Sutton (USA) 8:15.53, 3.
50m freestyle, semifinal: Vladimir Morozov (RUS) 20.95, 1; Andrii Govorov (UKR) 21.27, 2; Marco Orsi (ITA) 21.37, 3. Also: Cameron Simpson 21.81, 8.