Allen - the world number 11 from Northern Ireland - berated China's world number 81 Cao for being guilty of a push shot in the 10th frame of the match that he claimed referee Paul Collier failed to spot before proceeding to accuse two other players of cheating in the past.
He is likely to be in trouble with governing body World Snooker for his allegations especially with China staging five tournaments on the revitalised professional circuit next season.
"I thought the big turning point of the match was at 5-4," said Allen in an astonishing outburst at his post-match press conference in Sheffield's Crucible Theatre. "He was in among the balls and Paul Collier missed a blatant push (shot). It was quite obvious to me... anyone at home could probably see that.
"It was a big stage of the match considering I had put him under pressure last night to get back to 5-4. If the referee rightfully calls a foul there, I have a good chance of going 5-5. He (Cao) went on from there to pull away to 7-4.
"It seems to be a bit of trait for the Chinese players. There's been a few instances in the past...fouls...and blatant cheating going on. It needs to be corrected because he (Cao) is a good enough player. He doesn't have to do that.
"He did look at the referee as soon as he done it as if to say: 'you're not going to call a foul here?' I looked at Paul and Michaela (Tabb) who was marking the match and Griffiths (former world champion and coach Terry) who was commentating on it. Anything that Terry says, I trust.
"He (Griffiths) pretty much confirmed it at the interval. It is a pretty sad state of snooker if it has to come down to that. Its not the first time. Maybe it is just a Chinese thing."
Allen was also scathing in his criticism of the conditions at China's Haikou World Open last month before apologising. Ironically, Allen won the event.
Allen tweeted: "Dead cat found this morning. Any wonder this place stinks. Must be dead cats all round the town. This place is horrendous. It just baffles me how world snooker continuously go out of their way to put tournaments on in the middle of nowhere. Journey a nightmare. People are ignorant. Place stinks. Arena's rubbish, tables poor, food is horrendous. Other than that I love China."
Defeat came as a bitter disappointment to Allen - a losing finalist to Judd Trump in December's UK Championship. He was rated among the favourites to win the event having clinched his first ranking tournament at the Haikou World Open.
Allen's best run at the World Championship remains a losing semi-final to John Higgins in 2009.