Zirconia (ZrO2) nanoparticles were synthesized using a solvothermal method under varying synthesis conditions, namely acidic, neutral, and alkaline. X-ray diffraction (XRD) and field emission scanning electron microscopy (FESEM) were leveraged to investigate the phase evolution and topographical features in detail. The resulting crystal phase structures and grain sizes exhibited substantial variation based on these conditions. Notably, the acidic condition fostered a monoclinic phase in ZrO2, while the alkaline condition yielded a combination of tetragonal and monoclinic phases. In contrast, ZrO2 obtained under neutral conditions demonstrated a refinement in grain sizes, constrained within a 1 nm scale upon an 800 °C thermal treatment. This was accompanied by an important transformation from a monoclinic phase to tetragonal phase in the ZrO2. Furthermore, a rigorous examination of XPS data and a UV-visible spectrometer (UV-vis) analysis revealed the significant role of oxygen vacancies in phase stabilization. The notable emergence of new energy bands in ZrO2, in stark contrast to the intrinsic bands observed in a pure monoclinic sample, are attributed to these oxygen vacancies. This research offers valuable insights into the novel energy bands, phase stability, and optical absorption properties influenced by oxygen vacancies in ZrO2. Moreover, it proposes an innovative energy level model for zirconia, underpinning its applicability in diverse technological areas.