Larsson broke the deadlock shortly before half-time and then leading scorer Gardner's ninth goal of the campaign wrapped up victory.
The result means City have leapfrogged over the Black Cats and increased the pressure on manager Steve Bruce, who spent six years in charge at St. Andrew's.
Larsson may be out of contract in the summer but he produced a committed and inspirational performance and left the pitch to a standing ovation with three minutes remaining.
Injury-decimated Sunderland have now managed to collect only one point from the last nine games.
There was a lack of belief about the visitors' performance after such a woeful run, while Birmingham started brightly and Cameron Jerome came close to putting them ahead after two minutes.
The former England Under-21 striker outstripped Michael Turner in running onto a through-ball from Stuart Parnaby.
But, after cutting into the area, his low shot was blocked by the feet of Simon Mignolet.
Blues midfielder Craig Gardner was first to react to the rebound but his shot was charged down.
Roger Johnson got on the end of an inswinging Sebastian Larsson corner but directed his far-post header just wide.
But a mistake by Barry Ferguson almost proved costly for City. He was dispossessed by Lee Cattermole, whose shot was blocked by Ben Foster after he had raced off his line. The ball broke into the path of Sessegnon 12 yards out and his low shot was cleared off the line by Johnson.
Danny Welbeck had his first sight of goal after 26 minutes but Gardner made a brave block as he prepared to shoot.
Bardsley tried his luck from 25 yards out and his dipping effort was only a couple of yards wide, although Foster had it covered.
But after 41 minutes Larsson took advantage of a defensive mix-up to give City the lead on his 100th Premier League appearance.
A long clearance from Foster was flicked on by Jerome and Larsson took advantage of a mix-up between Bardsley and Mignolet to score his third goal of the campaign.
Sunderland tried to retaliate and Foster did well to turn a curling drive from Gyan around the post.
Birmingham started the second half brightly and Johnson headed over from a Larsson corner.
But Sunderland came within inches of equalising after the best move of the game to date.
Some fine interplay ended with Gyan teeing up the chance for Henderson, whose shot flashed past the post with Foster beaten.
There was a new purpose about the Black Cats' play and Foster turned aside a skidding low shot from Cattermole.
Welbeck then had a close-range header deflected over the bar from a Henderson corner.
McLeish made his first change after 62 minutes with Alexander Hleb replacing Phillips - and the new man made an immediate impact by creating a second goal for Gardner after 66 minutes.
The former Arsenal player held the ball up before picking out the unmarked Gardner, whose swerving shot contained too much power for Mignolet and flew into the corner of the net.
Gyan volleyed wide from 20 yards out as Sunderland tried to claw their way back into the game.
Sunderland made their first change, with Welbeck replaced by Ryan Noble.
The Black Cats then brought on Steed Malbranque for Jack Colback but they seldom threatened to score even a consolation goal.
Birmingham were content to wind down the clock, which they achieved with ease.