The Brit started the final race of the season level on points with Max Verstappen in the F1 standings, with 26 points up for grabs.
After leading the pack for the majority of the race and building an 11 second lead over Verstappen, Hamilton looked destined to finish in pole position before an incident at the back of the field blew the race wide open.
Williams’ Nicholas Latifi lost control of his vehicle and crashed into safety barriers with just six laps to go.
While a safety car brought drivers to a slower speed to allow stewards to clear the track, Verstappen pounced on the opportunity to change his tyres for better grip and speed.
Hamilton, who last changed his tyres on lap 14, decided against taking a pit stop to hold on to his first-place track position.
What happened next surprised everyone watching. The FIA’s Race Director Michael Massi made a dramatic U-turn on a decision that unlapped cars should hold their position.
The call allowed Verstappen to move into second place before the race resumed with one lap to go.
The Red Bull driver then powered past Hamilton in the dying seconds of the last lap, with the Mercedes’ man’s older tyres unable to compete.
Hamilton was sportsmanlike in defeat, taking the time to congratulate Verstappen before summarising his season: “Firstly congratulations to Max and to his team. I think we did an amazing job this year. My team, everyone back at the factory, have worked so hard this whole year, it's been the most difficult of seasons.
“I'm so proud of them and I'm so grateful to be a part of the journey with them. This last part of the season we gave it absolutely everything and never gave up, that's the most important thing.”
The new F1 champion said: “Finally a bit of luck for me... My team know I love them, and I hope we can do this for 10-15 years together... our goal was to be world champions and now we've done that.”
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Elsewhere, people weren’t so diplomatic with their opinions. Piers Morgan tweeted: “I don't know what I've just watched but it can't be right. Hamilton's been robbed, surely?”
Jeremy Clarkson tweeted: “Delighted with the result but the stewards need to be banned. We’ve had enough of them.” The Grand Tour presenter added: “Very very dignified from Lewis Hamilton”.
Verstappen’s father gave an honest account of the day: “Of course because of the safety car we are in this situation.”
He added: “The team had a good stretch... I mean, they’re doing a lot of things very good, and I think Max was the driver this year and he really deserved this championship.”
Mercedes lodged two protests over the events at The Yas Marina Circuit, both of which have been dismissed by the FIA.
Did you watch it live? What do you think about the result? Leave a comment below.