The former world number one will not compete in the final for the first time in four years, with Bingham advancing to a semi-final match against Judd Trump.
Earlier in the week, O'Sullivan said that he was less motivated to win, and his body language during the quarter-final loss certainly indicated that he had given up after a series of basic errors.
Bingham finished the match with a break of 66, and was in control of the match from the start, creating a 5-3 lead after the first session of play.
He went on to post breaks of 74, 51, 85 and 88 as he stretched the lead, winning four frames in a row.
O'Sullivan blamed his limited playing schedule for the defeat, telling Sky Sports News: "I was off the pace. I've no complaints, I was the second best player and deserved to lose the match.
"You can't start looking for form these days. I made so many unforced errors. Before you might have got away with it but now you get punished by all the players.
"I'm not surprised and I'm not prepared to play in all the little events either. I'm not prepared to travel around in and out of a suitcase."
O'Sullivan has previously won five World Championships, with his last victory coming in 2013.