Juan Delgado and Esteban Paredes scored for Colo Colo in the opening 20 minutes but a 90th-minute penalty from Palestino's Sergio Lopez ensured the league leaders had a nervous finish.
Sunday's victory took Colo Colo to 22 points after eight rounds with the 29-time Chilean champions still undefeated in the Clausura campaign.
O'Higgins are the only other undefeated club so far this season and sit second on 18 points, while Universidad Catolica are third, just ahead of Deportes Iquique on goal difference (both 16 points).
At Palestino's Estadio Santa Laura, Colo Colo stunned the home side in just the fourth minute with a nice move down the right-hand side, which was finished off by Delgado.
The visitors doubled their lead in the 19th minute thanks to another cross from the right wing, which picked out a charging Paredes and the veteran midfielder headed the ball home.
Palestino worked hard in the second half but first managed to score in the final minute when Lopez was tripped in the area and then converted the subsequent spot-kick himself.
The win was Colo Colo's fifth in a row, while Palestino, who led the Primera Division earlier in the season, have one victory in their past four matches to sit fifth on 14 points.
O'Higgins leapfrogged Catolica into second on Saturday with a 2-0 victory over Universidad.
Pablo Calandria put O'Higgins ahead just past the half-hour mark but the home side were unable to wrap up victory until the first minute of second-half stoppage time when Yerko Opazo scored.
Catolica's hopes of equalising were severely weakened when midfielder Milovan Mirosevic was sent off in the 78th minute.
A hat-trick from Manuel Villalobos saw Deportes Iquique come from two goals down at half-time to win 3-2 at home to Antofagasta, while in another high-scoring encounter; Audax Italiano drew 3-3 with Universidad de Chile.
Santiago Wanderers defeated Union La Calera 1-0, Cobresal trumped Cobreloa 3-0, Everton won 3-1 away to Union Espanola, Huachipato edged out Nublense 1-0 and Rangers were held to a scoreless draw by Universidad Concepcion.
