The debatable decision allowed Juventus forward Vincenzo Iaquinta to rescue the Azzurri from total embarrassment after former Halifax striker Shane Smeltz had handed New Zealand a shock early lead at the Mbombela Stadium.
Italy then dominated a compelling Group F contest but could not find a way past the Kiwis’ outstanding goalkeeper Mark Paston.
The surprise result keeps alive New Zealand’s hopes of reaching the second round for the first time in their history and leaves Italy with much to do.
Herbert was celebrating one of the greatest results in his country’s sporting history as New Zealand started the tournament 2000/1 rank outsiders. The overjoyed coach said: “I think it has stopped the nation. It is the most incredible result we’ve had.
“I know it is early in the morning in New Zealand but I think there will be a lot of excitement back home.
“It’s more than anything we have achieved in the history of the game. I think it will be embraced enormously.”
The All Whites now face Paraguay in their final game on Thursday knowing that a win will take them through.
Herbert said: “A lot of people felt we shouldn’t be in the World Cup or felt the way we qualified was easy. I don’t think anyone remotely gave us a chance. We are doing okay for a team that supposedly has some amateurs and shouldn’t be in the World Cup.”
Italy dominated the second period and had numerous chances but could not find away past the resolute Kiwi defence or keeper Paston.
Riccardo Montolivo did hit the post in the first half but it needed a soft foul on Daniele De Rossi in the box to allow Italy to draw level.
Having found the group unexpectedly tough, Italy must now beat Slovakia to guarantee their passage.
Coach Marcello Lippi said: “We weren’t as lucid or enterprising as we should have been at times but we hit the woodwork once and went close.
“But it was not enough. We dominated but we did not create enough goalscoring opportunities. I don’t know why. We did very little of what we can do and we can do a lot better.”
The All Whites made the perfect start when Smeltz crept into the box to give them a seventh-minute lead. Lippi had warned that New Zealand’s greatest threat would come from set-pieces and his side were caught out as Simon Elliott swung in a free-kick from the left.
The ball dipped over Alberto Gilardino and Leo Bertos and wrong-footed Fabio Cannavaro, who could only divert it into the path of Smeltz.
The Gold Coast forward, who has previously played for Mansfield and English non-league side AFC Wimbledon, gleefully poked the ball past second-choice Italy goalkeeper Federico Marchetti.
New Zealand were caught out after 28 minutes as de Rossi went down in the area after the slightest of shirt pulls from Ipswich defender Tommy Smith.
The Kiwis complained about the decision but Iaquinta stepped up to convert from the spot, much to Italian relief.
ITALY: Marchetti, Zambrotta, Cannavaro, Chiellini, Criscito, Pepe (Camoranesi 46), De Rossi, Montolivo, Marchisio (Pazzini 61), Iaquinta, Gilardino (Di Natale 46).
NEW ZEALAND: Paston, Reid, Nelsen, Vicelich (Christie 80), Smith, Fallon (Woods 62), Bertos, Elliott, Lochhead, Killen (Barron 90), Smeltz.
Referee: Carlos Batres (Guatemala).