There's no doubt Djokovic is the man to beat on indoor hard courts.
And just for the record, his 22 consecutive wins to finish 2013 matched top-ranked Nadal's best stretch of the year.
Djokovic's winning run started after a U.S. Open final defeat to Nadal, and during a span when the Spaniard replaced him atop the rankings.
"The most positive thing that I can take from those 2½ months is the fact that I managed to regroup after a few big losses against Nadal, especially in Roland Garros, U.S. Open final and Wimbledon final," said Djokovic, who became the seventh player to win the elite season-ending tournament at least three times.
His victory in London denied Nadal the only big trophy missing from his resume.
Having produced one of the most memorable comebacks in tennis, Nadal lost in a deciding match for the second time at the tour finals and missed the chance to join Andre Agassi as the only players to have won all four Grand Slams, Olympic gold, the Davis Cup and the year-end tournament.
"It's not going to change my career, winning or losing today," Nadal said. "I am not very disappointed. I know that I was not the favorite for the match, even if I tried with the right attitude, in my opinion, fighting for every moment, trying to be positive in every moment, even if the match was not going the way that I would like."
Monday's defeat was a strong warning to Nadal, who overhauled Djokovic for the No. 1 ranking last month, that his Serbian rival will be ready to extend his form into next year's Australian Open, where he is the three-time defending champion.
Djokovic has beaten Nadal 10 times in 19 finals and is unbeaten since losing at the U.S. Open in September.
"After the US Open final, of course, I needed to take things slowly and see and analyze what I did wrong, especially in the matches against him, to understand what I need to do in order to win against him," Djokovic said. "I think the results are showing that we had a great improvement in the last 2½ months."
Djokovic returned superbly from the start to move his Spanish rival around the court and prevent him from dictating the points.
Nadal, playing on his less favorite surface, hit only nine winners and was broken three times.
"If I can say about one thing that makes the difference in today's match was the serve -- I didn't serve well, he served well," Nadal said. "So in this kind of court, first shot is very important, and he did that first shot much better than me."
Nadal's return to the No. 1 ranking came on the back of a stunning comeback from a career-threatening knee injury.
Since returning in February, the Spaniard has won 75 matches -- losing only seven -- to win 10 titles including the French Open, the U.S. Open and five Masters 1000 events.
But Djokovic proved again that he still has the upper hand on hard courts by extending his head-to-head winning record to 13-7 on that surface against Nadal.
"Year-end No. 1 is deservedly in Nadal's hands because he had two Grand Slam wins, the best season out of all players, the most titles," Djokovic said.
"I think that's no doubt, cannot question that. I tried to put aside the calculations and the rankings after U.S. Open and just tried to focus on one tournament at a time, one day at a time. That kind of attitude has helped me to get to where I am at this moment."
Djokovic made an impressive start, hitting powerful groundstrokes to keep Nadal well behind his baseline while limiting his own mistakes.
Returning well, the Serb made the most of two of Nadal's backhand errors to break in the second game. He had another chance in the fourth game after Nadal double-faulted, but was unable to convert.
Nadal got into the match from that point. He put Djokovic under pressure with his huge forehands in the next game and two unforced errors from the Serb allowed him to break back and then even at 3-3.
But Nadal faltered in his next service game as he served a double-fault at 30-30.
After a stunning exchange, Djokovic broke for a 5-3 edge following a series of volleys at the net. Standing in the middle of the court, the Serb opened his arms and screamed as the crowd erupted in cheers.
Djokovic sealed the first set with an ace.
Appearing confident, Djokovic raised his game further in the second set, pinpointing his shots on the lines to make life more difficult for Nadal after breaking in the third game of the second set.
The resilient Spaniard saved two match points and kept encouraging himself until the end, but a final forehand too long gave Djokovic the title.
Djokovic will focus on the Davis Cup final later this week in Belgrade, where he will lead Serbia against defending champion Czech Republic.