Sanchez – who failed to make the weight for her showdown with Taylor – took a sickening blow to her abdomen in the second round.
While the Argentine recovered to finish the fight, it was Irishwoman Taylor who won on points.
“It means more than words can express, this is a dream come true – it was by far the biggest night of my career,” said the Irish fighter.
“It was tough, but I am delighted to be world champion. I got a bit wild at times and left myself a bit open.
“This is the start of the takeover from me in the lightweight division – I want to unify these belts.”
Click through the gallery above to see the moment Katie Taylor sent Anahi Sanchez to the floor!