A Gerin Eldred try for the Dragons left the South trailing 5-0 at the interval; but a rousing second half performance saw the visitors home, if only just.
James Benjamin bagged a second try for the Dragons with Ethan Davies converting and adding a penalty for good measure. However, when the South discovered the level of control that had taken them into contention going into the game, they crossed for the only time through prolific scorer Osian Davies.
Gareth Thompson, the side's leading scorer this season, converted the try and made sure that the South were at least in with a chance of reaching the last two, with three penalties and a drop goal.
John Richards, team manager at the Blues South, said; "We gave it our best shot and can be pleased with our effort this season.
"To the credit of the Dragons, they might not have had a place in the final to play for, but the threw everything at us. It was a strong game and very enjoyable."
Meanwhile the Ospreys booked their place in the final with coach David Jones' side running out comfortable 35-3 winners over Blues North.
Lewis Montague gave the North an early lead with a penalty before the Ospreys cut loose and scored five tries, including two from the second row Dewi Parry.
His first helped the hosts into a 7-3 interval lead and after crossing for a second 10 minutes into the second half, the Ospreys made sure of maximum spoils with further tries from Matthew Jenkins, Evan Yardley and Sam M Davies.
Outside half Sam Davies kicked five conversions to put the icing on a fine team performance.
The Scarlets, who went into their final game against the Dragons with a 100 per cent record, almost came unstuck as the visitors produced an outstanding display at Parc y Scarlets.
The Dragons dominated the first half and turned around six points to the good courtesy of two penalties.
After the interval, the Dragons maintained the intensity level, but ill discipline started to creep into their game. The Scarlets closed the gap with a try from scrum half Gareth George with Jordan Williams, who had already kicked a penalty, converting.
The Dragons again struck with a brace of penalties and an unconverted try, but the Scarlets made sure of a 17-17 draw thanks to a late try from Daniel Thomas that Williams converted from wide out.
The Under 16 Regional Championship final between the Ospreys and the Scarlets will take place at St Helens, Swansea at 7.15 on Wednesday 10 February. Tickets are £3 for adults, free entry for Under 16s. Spectators are kindly requested to enter St Helens via Bryn Road.