China have long dominated the women's game and the last non-Chinese to be world number one was Denmark's Tine Baun in December 2010.
While Li, who won Olympic gold in London, has struggled with a foot injury, the other contender for the top ranking, All England champion Carolina Marin of Spain, lost in the semi-final of the India Open super-series.
World Champion Marin, who beat Nehwal in the All England final this month, lost to third-seeded Thai Ratchanok Intanon 21—19 21—23 22—20 in the semi-finals.
Olympic bronze medallist Nehwal, 25, will play Japan's Yui Hashimoto in the second semi-final but will advance to the top irrespective of her result.
"I want to be the best," Nehwal said before her top ranking was confirmed. "It's not about the ranking, it's about being consistent.
"Li Xuerui is injured. You can't ignore the fact that she's the best player in the world, but she's been injured over the last few months.
"When she comes back she will be strong. The Chinese will come back and they will be ready for us."
(Reporting by Sudipto Ganguly; editing by xx)
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