After 12 tight rounds, the ’Russian Giant’ was ahead 115-114 and 116-112 on two scorecards, while the third judge ruled it 114-114.
It was a spirited performance by the 46-year-old challenger, though, who was trying to win the world title for a fifth time.
The ’Real Deal’ received a rapturous reception from the sell-out crowd of 12,500 fans in Zurich, who cheered every time the American launched an attack.
With Valuev controlling the centre of the ring in the opening rounds, Holyfield danced around his opponent, hitting with occasional single shots.
The former champion did well to stay away from Valuev´s long left jab and hit him with a big left in the fourth, but the Russian answered with a strong right uppercut.
Much to the delight of the crowd, the fifth was a good round for Holyfield who first landed a right-left combination to the body and later connected with a big left hook to the head.
Both men were on target during a mid-round exchange in the sixth, but Valuev´s left jab looked more effective in the sixth.
In the seventh, the crowd raised the roof when Holyfield fired in a combination to the head. However, Valuev would continue to control the centre of the ring, not allowing Holyfield to hit him very often.
Valuev´s corner urged him to be more aggressive and he eventually landed a strong right in the
eighth when Holyfield seemed to tire a little.
The Russian remained on the front foot during a big exchange in the ninth, and in the 10th Holyfield landed a strong right-left combination. Valuev finished better and punished his opponent in the corner in the 12th.
After the final bell rang, both men hugged each other, with neither fighter claiming the win.
When the scorecards were read, boos rang out as the crowd favourite’s narrow defeat was confirmed.
Holyfield will take time to consider whether to return to the ring after his defeat.
"I will go home and think about the future," he said. "But I knew I could still do it.
"I fought very well and won the fight but I did not get the decision. I think I showed tonight that I still can box and that age does not matter."
Valuev said it was an honour to fight a legend like Holyfield.
"I am proud to have been in the same ring with him," he said. "He was very fast and hard to hit. I can only advise people not to get hit by him.
“I expected a tough fight and that is what it was. Holyfield is a great fighter and he proved it tonight."
On Friday night, Bedford's Matt Skelton claimed the vacant European heavyweight title with a ninth-round stoppage of Italian Paulo Vidoz in Milan.