Many eyes were on Yomif Kejelcha, who just missed the mile world record last week but Tefera, 19, overtook his compatriot with 200m to go and finished in three minutes 31.04 seconds.
He beat El Guerrouj’s previous mark of 3:31.18, set in Stuttgart in 1997.
Kejelcha, who was undefeated indoors this year, clocked 3:31.58.
Josh Kerr was the best-placed Briton with a fourth-placed finish in a personal best of 3:35.72.
Tefera has a good record on the track in Birmingham having won the world indoor title last year.
Source: BBC Sport