Smith, who beat Michael van Gerwen in a high-class final to take the world crown last week, appeared in cruise control of Friday's first-to-eight-legs showpiece after he raced into a 7-3 lead against Price.
But Welshman Price, who is still considering whether he will return to the World Championship stage after he was singled out by the raucous Alexandra Palace crowd, took the next three legs.
Smith began the 14th leg by firing in a 180, allowing him two visits from 142 to claim the title.
However, the world number one left the door ajar for Price to force a decider after he missed two match darts when he needed 52 to win.
Price required 97, but the Iceman could not find a checkout, with Smith - who earlier beat Dimitri Van den Bergh and then Raymond van Barneveld en route to the final - stumbling over the finish line to take the spoils 8-6.
The inaugural Bahrain Darts Masters, in partnership with the Bahrain Tourism & Exhibition Authority, saw 16 players competing in The Dome at the Bahrain International Circuit across two days.
Ultimately, it was World Champion Smith who went on to scoop the £20,000 title and a third World Series triumph.
Photo Credit: Bahrain International Circuit