Swiss number two Wawrinka came into the match needing to win just three games in the entire contest to book a meeting with red-hot compatriot Roger Federer in the final four.
Wawrinka completed that by the end of the contest's fourth game and looked to be going through in style after impressively taking the opening set.
But Cilic, having lost in straight sets to Novak Djokovic and Tomas Berdych already at the O2 Arena this week, came late to the party and took the second set with a dogged display to force just the second three-set match of the tournament so far.
Wawrinka, though, clicked back into gear for the decider to book a meeting with Federer on Saturday - heading himself into the game after demolishing Andy Murray 6-0 6-1.
The Swiss pair have each won one of their two games against each other on Tour this year, but Federer's overall record against his countryman stands at an imposing 14-2.
Wawrinka was quick out the blocks and had his place in the knockout stages confirmed as he took a 40-0 lead in game four, Cilic firing wide on approach on the Swiss' second break point.
Cilic failed to make any inroads on his opponent's serve and had ceded the opening set in 33 minutes as Wawrinka dragged him from the baseline with a teasing drop-shot that the Croat could only put into the tramlines.
Both players dominated on serve in the early going of the second set, Wawrinka drawing coos from the crowd with a forehand clocked at 92 mph as he drew level at 3-3.
At 5-4 up, Cilic pounced on sloppy Wawrinka play and won his first set of the week.
The Croat looked set to bow out with a victory as he moved 2-0 up in the decider, Wawrinka was again his own worst enemy as he pushed too long when looking for a winner to gift his opponent the second game.
However, nerves perhaps gripped Cilic as a double-fault and mis-hit forehand allowed Wawrinka to break back immediately before a directionless backhand put him in the lead at 4-3 with a second break.
Wawrinka's own backhand was working just fine, cutting across Cilic in game nine to put him 30-15 up before another double-fault from the Croat gave the world number four victory.