Chasing a very big target of 339, Virat Kohli-led India crumbled like a house of cards and were all out for 158 in the 31st over.
Jasprit Bumrah struck a first blow for India in the 4th over when he had southpaw opener Fakhar Zaman caught behind but the batsman was recalled after replays showed that Bumrah had overstepped the line.
With Hasan Ali, the tournament's top wicket-taker, Junaid Khan and Shadab Khan going for the kill, the Indians were finally bowled out for just 158 in 30.3 overs.
The best successful run-chase in an ODI at the Oval is now the 322-3 scored on this ground earlier in the tournament by Sri Lanka over India. Fakhar, out to a nice catch on the run by Jadeja behind square, scored 114 off 106 balls.
Muhammad Amir and Hassan Ali secured three wickets each and restricted India to a minor total.
Pakistan, who had lost all three of their previous matches against India in the knockout stages of International Cricket Council tournaments and started this event the lowest ranked of all the eight teams taking part, were now on the brink of a sensational win.
Team India, who were the defending champions of the tournament, had the chance to create history under the captaincy of Virat Kohli. The victory refreshed memories of the historic 1992 World Cup triumph when Pakistan came back from the verge of elimination to win the coveted crown.
"This performance will be remembered long by both Indian and Pakistani fans Pakistan 've made this #CT17 truly memorable", Afridi said. After he was gone at 152, India managed only six more runs and survived for only 24 more balls. They played the ball according to its merit and made full use of the conditions despite losing the toss.
Amir trapped Rohit Sharma lbw from the third ball, before captain Virat Kohli was dropped and then dismissed in successive balls.
At the other end, Azhar Ali, usually staid and unremarkable, unfurled some shots of his own as Pakistan's openers put together a partnership of 128 runs.
Bottom-ranked Pakistan produced a breathtaking display at London s Oval on Sunday in the climax of a tournament featuring the world s top eight one-day worldwide nations.
Pakistan outplayed India in all three departments of the game.
Hardik Pandya smashed 76 off 43 balls, hit half a dozen of sixes to provide some entertainment, before being run-out due to a frightful mix-up with Jadeja.
If Zaman announced his arrival in global cricket with a match-defining knock, Pakistan cricket's "enfant terrible" Amir finally managed to sing a redemption song that he has been longing for.
India got their man finally thanks to a fine catch by Jadeja running back from point after a skewed big hit at Pandya. He reflected on various issues which he and India encountered on the field of play.
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