Ding secured his seventh career 147 in the seventh frame of the first round clash.
The 36-year-old overcame a tricky yellow and a pink with the rest, which wobbled in the pocket before it dropped, to record only the fourth maximum at the prestigious tournament – and his second after achieving the feat as a teenager in 2007.
Marco Fu and Kirk Stevens are the only other players to hit a maximum in the prestigous tournament.
Ding was 4-0 behind the world number one at the mid-session break but O'Sullivan missed a simple red to leave the door ajar for Ding.
The Chinese star immediately pulled two frames back before his magic moment left him trailing by one at 4-3.
However O'Sullivan, bidding for an eighth Masters title, hit straight back with a break of 127, and two visits to the table later he had wrapped up victory.
"Unbelievable 147 from Ding, I knew he'd make it from about the second or third red. What a magnificent player," O'Sullivan told the BBC.
On his rapid response to the maximum, he added in typical O'Sullivan style: "Listen, I just tried. My cueing is not great.
"I was just trying to manufacture stuff out there. But I tried, there's nothing else you can do really, is there?"
Ding was not at the races before the interval and surprised himself with his milestone break.
"I had a lot of chances at the start but just messed up," he said. "I didn't think I would play that well when we came back so to make a maximum was amazing.
"I saw the balls open and thought I could try a maximum because Ronnie was playing so well."
Ali Carter evoked memories of his shock run to the 2020 final as he came on strong to sink two-time winner Mark Williams 6-4 and move into the last eight.
It marked the continuation of a promising season for the 44-year-old, who has already reached the final of the Wuhan Open in October and the last eight of the International Championship.
Williams nudged in front three times in the opening stages but the momentum turned in frame six when Carter scored the first of two consecutive centuries, 118 followed by 113 to lead 4-3.
Williams responded with a break of 86 to haul the match back level but his long potting let him down and Carter wrapped up a thoroughly impressive win with consecutive breaks of 61 and 73.
Carter, who will play either Judd Trump or Kyren Wilson in the quarter-finals, told Eurosport: "Mark's such a great competitor. I just dug in there. That's a feather in my cap, so I'll be back Friday for some more."
