Ding, 30, takes over as winner of the World Chess Championship from Norway's Magnus Carlsen, who chose not to defend his title after a 10-year reign.
He and Nepomniachtchi had finished on seven points each after the 14 first-stage games played in the Kazakh capital Astana. Each won three, while the other eight ended in a draw.
For the tie-break stage of the match, also in Astana, the contenders had only 25 minutes to make their moves, plus an additional 10 seconds for each move played.
Ding is rated higher than Nepomniachtchi in the faster formats of the game but had played very little such chess in official competitions since January 2020.
The two-million-euro prize would have been split 60-40 between the winner and the runner-up if the match had been decided in the initial 14-game series.
No Chinese player had ever previously won the competition, in which men and women can compete.
But China has dominated women's tournaments since the 1990s and Ding's triumph signaled the country's rise as a major player on the global chess scene.
China also won the Chess Olympiad, the game's most important international competition, in 2014 and 2018, with Ding playing a major role in his nation's success on both occasions.
Saturday's game between Ding and Nepomniachtchi had demonstrated once again that at this level chess is as much a question of nerves as it is a battle of minds.
Both players seemed to be feeling the pressure, making uncharacteristic mistakes in their play, while failing to take full advantage of the other's errors.
Although Nepomniachtchi pushed hard to convert a slight advantage into a win, he finally had to settle for a draw in what was the longest game of the tournament: 90 moves played over more than six and a half hours.
Sunday's action followed a similar trend, with the games likely to be most remembered for their dramatic circumstances rather than the quality of play.
The Covid-19 pandemic held back Ding's progress and he initially failed to obtain a visa for competitions leading to qualification for the Candidates Tournament, which players must win to challenge the world champion.
The disqualification of Russia's Sergey Karjakin from all tournaments organized by the International Chess Federation, which took a pro-Ukraine position following Moscow's invasion, freed up a space at the 2022 Candidates Tournament which Ding took as the highest-ranked non-qualifier.
He finished second at the tournament, but Carlsen's decision to step aside from the World Chess Championship allowed him to compete against Nepomniachtchi in Astana.