The tall 31-year-old Ferry had trailed the pacesetting Jay by 72 seconds after Sunday's 10km sprint but he burst into the front after a flawless display in the first three rounds of shooting.
Although he missed one target in the final round of standing shooting, the six-foot four Swede had built a big enough lead to shrug off the penalty and coast home to victory, raising both arms skywards in celebration.
Ferry, whose previous best Olympic finish was fourth place in the 4x7.5km at the 2006 Turin Games, completed the course in 33 minutes 38.4 seconds, with Austrian Christoph Sumann finishing 16.5 seconds behind.
"I've waited for this my whole life," a smiling Ferry said after climbing to the top of the podium. "I don't know how I did it.
"Everything is possible but you have to have a bit of luck," added the Swede, who has not been at his best this season and lies 23rd in the World Cup overall standings.
"I missed one target in the final round of standing shooting but I made my last shot. That was a great feeling."
Sumann, the 34-year-old border guard based in Frojach, had been suffering for several days before the event. "I had some problems with my belly and I went straight from the toilet to the track this morning," he said after improving 10 places from Sunday's 10km sprint.
"I didn't feel very well yesterday and also in the morning but I could focus on my skiing today. I didn't have problems during the race and hopefully it will get better from now on.
"And my shooting was good," he said after missing only two targets, one in each of the two standing shooting rounds. "I felt good on this range."
Jay, who had delivered a shock victory in the 10km sprint to land his first gold medal, had to settle for the bronze after missing one target in each of the standing rounds of shooting.
Norwegian Emil Hegle Svendsen began the day just 12 seconds behind Jay and briefly closed the gap before falling back into eighth place because of untidy shooting in the last three rounds.
Norway's Ole Einar Bjorndalen, a nine-times Olympic medallist who is widely regarded at the best biathlete ever, ended up in seventh spot after starting a crisp but dry day in the Whistler mountains in 17th place.
"I had a good skiing performance but missed two (targets) in the last shooting when I felt very tired," said Bjorndalen, who struck gold four times at the 2002 Salt Lake City Games.
"We had perfect weather and the same conditions for everybody so it was a good race."
Lee Jackson, the 29-year-old soldier from Stockton-on-Tees, finished 56th after missing three targets on his penultimate visit to the range.
"I skied well today. I was disappointed with my first standing shoot, but I picked it up at the end," said Jackson.
Jackson started in 55th place and crossed the line six minutes 16.3 seconds behind Ferry.
Place of birth: Stensele, Sweden
Residence: Storuman, Sweden
Previous Olympic results:
Fourth place, 2006 Winter Olympics, 4x7.5km relay
14th place, 2006 Winter Olympics, 10km sprint
18th place, 2006 Winter Olympics, 15km mass start
27th place, 2006 Winter Olympics, 12.5km pursuit
28th place, 2006 Winter Olympics, 20km individual
Gold medallist, 2007 World Championships, mixed 2x6 and 2x7.5km relay
Runner-up, 2006/07 World Cup, sprint ranking
Third, 2007/08 World Cup, pursuit ranking
Ferry, who also competes in cross-country skiing, made his debut for Sweden in 2001. His wife, Heidi Andersson, is a world champion in arm wrestling.
The tall Swede had not been in good form prior to his Vancouver victory and is currently 23rd in the World Cup overall standings.