Germany's Vettel finished runner-up and 5.1 seconds behind the Briton, who narrowly avoided starting from the pit lane due to a pre-race engine scare, with his Australian Red Bull team mate Mark Webber taking third after starting 18th.
"That was amazing, thank you so much," yelled Hamilton, whooping with delight after his first win since Belgium in August, 2010. The 26-year-old, triumphant in Shanghai on his way to the title in 2008, was the first driver to win twice in China since the race made its debut on the calendar in 2004. "The car just wouldn't start," he said of the pre-race problems that had his McLaren mechanics working feverishly to get him out of the garage and onto the second row of the grid with only seconds to spare.
Vettel had won the first two races of the season, after also finishing first in the last two of 2010, from pole position and looked the favourite again after grabbing the top slot in qualifying. His decision to make two stops to Hamilton's three proved crucial, however, with the McLaren man making the most of his fresher tyres to reel in the Red Bull remorselessly over the closing laps. "Congratulations to Lewis and Team McLaren," said Vettel, after a thrilling finale to a rousing race. "They did a very good job. "I saw there were seven laps to go and not much I could do," he said of being hunted down by Hamilton. "I don't see second today as a disappointment...all in all we are happy with second. "First was not meant to be."
Vettel now has 68 points while Hamilton moved up to second overall with 47.
Red Bull have 105 to McLaren's 85 and Ferrari's 50.
Hamilton and team mate Jenson Button, who finished fourth after starting on the front row, had both screamed past Vettel at the start with the older Englishman leading the eventual winner for the first 13 laps.
The 2009 champion then blew his lead on his first pitstop with a rare mistake that would have embarrassed even a rookie, let alone one of the smoothest of drivers. With Vettel following him in, moments after passing Hamilton for second place, Button stopped at the Red Bull box before the German's mechanics frenziedly waved him on to make way for their man -- who then exited again before the flustered Briton. "I was looking down and when I looked back up I could see I was in the wrong place," he said. While the top five were separated by less than eight seconds after more than a third of the race, Webber was on a charge of his own.
Robbed of his chances of winning by a KERS problem on Saturday, he ran a different strategy to his team mate with one more set of tyres helping haul him up the field.
Germany's Nico Rosberg also enjoyed a moment in the limelight, leading after successive rounds of pitstops for Mercedes, but his hopes of a first career win after five seasons in Formula One faded as his team urged him to save fuel.
Rosberg finished fifth, ahead of Ferrari's Felipe Massa and Fernando Alonso in sixth and seventh.
Seven times world champion Michael Schumacher crossed the line in eighth place at the circuit where he had his last podium finish with Ferrari in 2006.
Final results and standings after the 2011 Chinese Grand Prix raced over 56 laps in Shanghai on Sunday