Chelsea dominated the first half and Ballack gave them a deserved half-time lead when he headed home Didier Drogba’s cross.
But United improved greatly after the break and Wayne Rooney looked to have earned a crucial point when he took advantage of a Ricardo Carvalho mistake to fire home.
Goal difference is now all that separates the sides at the top of the table, but United know that wins over West Ham and Wigan in the final two games will guarantee them the title.
The Reds suffered a further blow when Nemanja Vidic, named in the side after recovering from his stomach virus, was forced off with a nasty-looking facial injury early on.
With the second leg of the Champions League semi-final against Barcelona coming up on Tuesday, it was no surprise to see changes to Sir Alex Ferguson’s starting line-up.
Darren Fletcher made a surprise return from a month-long injury absence and Mikael Silvestre replaced Patrice Evra at left-back. Nani, Anderson and Ryan Giggs all started, with Cristiano Ronaldo and Carlos Tevez named on the bench.
Chelsea, defending an unbeaten home record in the Premier League stretching back to February 2004, were nearly gifted a goal in the opening 30 seconds.
Wes Brown’s poor header back to Edwin van der Sar forced the goalkeeper to scramble clear and the ball eventually fell to Michael Essien, who volleyed just over.
Vidic, who has often put his body on the line so often this season, then took a stray knee to the face from Drogba and was stretchered off looking bloodied and groggy.
Owen Hargreaves replaced him and took his place at right-back, with Brown shuffling into the middle alongside Rio Ferdinand.
United had an escape in the 21st minute when Joe Cole sprinted into the box and, after initially losing the ball, he regained it and smacked the bar with van der Sar beaten.
Essien was controlling the midfield for Chelsea in the absence of Frank Lampard, who missed the game following the death of his mother on Thursday.
Avram Grant’s side were playing a one-touch, high-tempo game and, although United conceded several free-kicks, that at least disrupted Chelsea’s rhythm.
United looked to have stemmed the Chelsea tide and were set to go in level at the break when Ballack broke the deadlock in first-half stoppage time.
Drogba held off the attentions of three Reds defenders on the right before clipping a cross over to Ballack, who arrowed a header past van der Sar.
The Germany international was booked for removing his shirt in the ensuing celebrations, while the Chelsea players raised another shirt aloft in tribute to Lampard’s mother.
Ferguson made no changes at the break but the Reds’ attacking intent at the start of the second half was much more apparent as they forced Chelsea onto the backfoot.
Brown was booked for impeding Essien but soon after the Reds were level through Rooney’s first career goal against Chelsea.
Carvalho played a lazy backpass to Petr Cech which Rooney pounced on gleefully, before cutting across John Terry and firing past Cech. Cue rapturous celebrations.
Rooney, who appeared to injure himself while celebrating his goal, was forced to leave the field in the 64th minute, but the sight of Ronaldo replacing him won’t have pleased Chelsea’s increasingly subdued supporters.
But just as United looked set to hold out for what could have been a decisive point, they were hit by a killer blow. Carrick appeared to handle
Essien's cross in the box and referee Alan Wiley, after consulting his assistant, pointed to the spot.
In Lampard’s absence, Ballack stepped up to send van der Sar the wrong way and preserve Chelsea's four-year unbeaten home run in the league.
In a frantic finale, Ashley Cole and substitute Andriy Shevchenko blocked shots from Ronaldo and Fletcher on the goalline, but Chelsea held on to take the title race to the wire.
