Galahad was slammed to the canvas by a big right hand at the start of the sixth round as the Spaniard claimed the title at the age of 35.
Galahad had won the vacant crown over fellow Briton Jazza Dickens in August and started as hot favourite against a fighter whose best days were assumed to be behind him.
Martinez fought two thrilling battles with Carl Frampton in 2013 and 2014 then was narrowly out-pointed by Josh Warrington in Leeds in 2017.
But a points loss to inexperienced Zelfa Barrett in February had appeared to spell the end of Martinez's hopes of wresting back a version of the world crown.
The technically-gifted Galahad looked set for an expected emphatic points win as he cleverly picked apart his opponent through the opening rounds.
But Martinez seized his chance to swing the fight in his favour when he floored Galahad out of the blue with a right hand at the end of round five.
Galahad's corner desperately tried to rouse him in between rounds but at the bell Martinez stalked across the ring and delivered another hammering right which immediately ended the contest.
Lights out for Harper
Earlier in the night, Alycia Baumgardner claimed the WBC and IBO super-featherweight titles after a fourth-round knockout win over Terri Harper.
The 27-year-old American dominated from the outset and won the bout with a ferocious overhand right which left her opponent stunned.
Harper was making the third defence of her titles but it was also her first fight in over a year due to a hand injury. In the end, the 25-year-old was unable to stop Baumgardner from inflicting her first defeat of her professional career.
Also on the undercard, Chris Billam-Smith retained his European cruiserweight title following a unanimous points victory over Dylan Bregeon.
Dom Hunt improved his record to 8-0 after a points victory over James Flint.
Donte Dixon also maintained his perfect record with a comfortable points win against Jordan McCorry.