It was a hat-trick of titles for the 25-year-old German, who had come into the last race of the season with a 13-point over Ferrari's Fernando Alonso and pipped his closest rival by just three points.
Red Bull's Vettel had 281 points after the 20th and final round while Alonso, who drove splendidly to finish second at the race had 278.
Vettel overcame a horrendous start, where he endured a lap 1 accident which pushed him to back of the grid, to finish a superb sixth and become only third driver in F1 history to won three consecutive drivers title.
Vettel erased record of legendary Brazilian driver Ayrton Senna, who had become the youngest triple champion at the age of 31 years and 227 days. Senna, who died in an accident during the San Marino Grand Prix in 1994.
Senna won the drivers' championship in 1988, 1990, 1991.
Vettel, who had a very strong second half with four straight wins -- Singapore, Japan, Korea and India.
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Alonso needed a miracle of sorts to pip Vettel to the title and it almost happened but for a great drive by Vettel he had to content with runners-up finish.
Ferrari had a fantastic season-end with both the drivers on the podium as Felipe Massa was third, followed by Mark Webber ahead of Sahara Force India's Nico Hulkenberg.
It was a an unfortunate last race for Hamilton with McLaren as he crashed out after leading the race, following a contact with Nico Hulkenberg in lap 49.
The race also marked the second retirement for seven-time world champion Michael Schumacher, who finished seventh after qualifying in 14th place.
The 43-year-old German had joined Mercedes in 2010, having first retired in 2006 with Ferrari.
His second stint has not been quite successful as he failed to win a single race in three seasons in deep contrast to his record 91-race victories in first stint, which began in 1991.
Behind Schumacher was Jean-Eric Vergne, Kamui Kobayashi and Kimi Raikkonen, who finished third in drivers standing with 207 points.