The Ford driver was the beneficiary of a late mistake by Frenchman Sebastien Ogier, who had looked on target to claim his maiden WRC victory before he spun and stalled his Citroen three corners from the end of the final stage on the picturesque 30km Whaanga Coast leg west of Hamilton.
Latvala ended up edging out Ogier by just 2.4sec.
Three years ago, Rally NZ provided the tightest finish since the WRC began, when Finn Marcus Gronholm pipped Frenchman Sebastien Loeb by a mere 0.3sec.
Latvala's success after three days of special stages on mostly gravel roads in Northland and Waikato was the third of his career and he put it at the top of the list.
"This is the best win, because we've had almost 400km of competition and at the end it's only two seconds," he said.
Victory came via some new-found consistency from a driver noted for mixing stunning times with some less impressive performances.
"For me, it has been a strange rally because I haven't won a single stage," the 25-year-old said.
"But in the end I am the winner, so it seems consistency matters."
The result was also Ford's 75th win in the championship, making the manufacturer the most successful in the sport's history by eclipsing Lancia's previous record of 74 set in 1992.
It also helped to wipe away Latvala's disappointment from the last Rally NZ two years ago, when he came unstuck on the penultimate stage, also along Whaanga Coast.
He had inherited the lead after compatriot and BP Ford team-mate Mikko Hirvonen lost time through a puncture and a spin, only to retire after he hit a rock and spun as well.
Loeb and Spanish team-mate Dani Sordo went to give Citroen Total a one-two finish.
This time around the boot was on the other foot, as Ogier, who drives for the back-up Citroen Junior team, and Loeb had to settle for the minor places on the podium.
Ogier, 26, a relative newcomer to the WRC having made his debut in 2008, he won plaudits on his first appearance in Rally NZ despite his crucial error.
"It just happened, one last mistake," he said.
"For sure it's shame to do this mistake at this moment of the race. It's never finished until the finish line."
However, he still went away happy with equalling his best result in the championship, believing his first win would come soon if he maintained his form.
Loeb, meanwhile, provided most the headlines over the event's three days until the dramatic finale.
The six-time world champion and winner of the past three rallies in 2010 crashed into a bridge on Friday morning and the time he lost left him 1min 40s off the pace.
But he launched a big comeback that saw him take the lead after yesterday's first stage, only to promptly lose it again when he hit a tree on the very next test -- also on the Whaanga Coast leg.
After what he also described as "a strange rally", Loeb was happy to finish third and not lose too much in the championship standings, in which he is still the clear leader, with Latvala moving into second place 36 points back.
