'Luke the Nuke' didn't have things all his way as Hazel won the opening set. However, Littler came back in emphatic style as he averaged 118 to win the second set and level the score.
The teenager won the next three legs to move 2-1 ahead, but a resilient Hazel forced a decided by winning the fourth set.
Ultimately, the more experienced 30-year-old couldn't keep pace with his mere 83 average and succumbed to defeat.
Littler, who ended the match averaging 91, moves on to the third round where he'll take on Dutchman Richard Veenstra.
After his victory, the youngster told Eurosport: "After going one set down, I really couldn't find anything, and then those two sets must have ended in under 10 minutes. I found everything that I could, and then at 2-2, I had to hold my nerve. I had to produce because Ben left himself 148 and I had a feeling it was going to go because it was a great match.
"At my age, I've just got to enjoy everything at the minute until I can try and go pro, but I have got everyone behind me, and I love them so much."
Earlier in the day, Michael Warburton prevailed in a five-set thriller as he beat Dave Prins 3-2 to progress into third round.
The Welshman may have averaged 85 - three points less than his opponent - but his on-point finishing allowed him to secure the win.
Warburton took out 96, 117 and 164 in what was an impressive display of checkouts at the Lakeside.
Next up for Warby is a clash against Jim McEwan who powered past Aaron Turner. After averaging 101 in the first round, expectations were high on the Scot. Nevertheless, he comfortably booked his place in the next stage of the tournament.
Brian Raman and Jarred Cole were also victorious as they continue their world championship campaigns.
Over in the women's draw, Maria O'Brien progressed past Marjolein Noijens with a 2-1 win in the second match of the afternoon.
In the evening session, Rhian O'Sullivan enjoyed a 2-1 win over Corrine Hammond to seal her spot in the quarter-final.