The encounter was originally scheduled for a newly built stadium in the western city of Patras, but police objected for security reasons.
Rival supporters were kept far apart inside Panionios' 13,000-seat stadium with only 7,000 tickets split between the two clubs.
Draconian security measures -- involving some 2,500 police officers -- were imposed in and around the stadium.
Fears of violence resulted in both Greek President Constantine Stephanopoulos and sports undersecretary Yiorgos Orfanos turning down traditional invitations to attend the match.
On the pitch, Panathinaikos enjoyed a superb start, going 1-0 up in the third minute with a header by Dimitris Papadopoulos off a perfect cross from German midfielder Markus Muench.
The early goal forced Olympiakos coach Nikos Alefantos to make two substitutions -- Lambros Houtos replaced Grigoris Georgatos in the 14th and Dimitris Mavrogennidis came on for Spyros Vallas in the 22nd.
Despite the changes, Panathinaikos came close to another goal in the 26th when a close-range header by Constantinou forced a diving save by goalkeeper Kleopas Yiannou.
At the other end, Panathinaikos 'keeper Costas Halkias did the same against a header by Ieroklis Stoltidis in the 39th.
But Halkias could only watch in the 66th as a well-placed header by Brazilian forward Giovanni, off a pass from Predrag Djordjevic, leveled the score at 1-1.
It took Constantinou only two minutes to give his team the lead again, quickly picking up on a header from Papadopoulos.
In the 80th, the Cypriot attacker exploited a mistake by French midfielder Christian Karembeu to make the score 3-1 and seal Panathinaikos' victory.
Olympiakos' last scoring chance came four minutes from the end when a shot by Djordjevic hit Halkias' bar.
Panathinaikos fans celebrated the win in downtown Athens, singing and waving the club's flag, as cars blew their horns.
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