The Italian squad of Adler Capelli, Cristiano Citton, Andrea Colinelli and Mauro Trentini clocked 4min 00.958sec in beating Russia in the semi-finals.
The previous record of 4:03.840 was set by an Australian quartet in Hamar, Norway, on August 20, 1993.
Tyler-Sharman had clocked 3min 31.830secs in the qualifying to beat Bellutti's previous record, set earlier this year in Colombia, of 3:31.924.
But Bellutti clocked 3:31.526 in her qualifying run to regain the record.
France's Marion Clignet also bettered Tyler-Sharman's time with a 3:31.674 run.
The 25-year old police-trainee, who won gold in the sprint at the Atlanta Olympics, covered the distance in 34.829sec, 38/100ths of a second in front of German Annette Neuman, with Australia's Michelle Ferris coming third.
"I got off to a bad start," she said afterwards.
"After a dozen metres or so I was put off when the front wheel lifted off the track momentarily. When I heard the cries from the crowd I knew it was going to be close and I gave my all," the Frenchwoman added.
Ballanger won her second consecutive sprint world championship here on Friday. Throughout her career, she has won four world championships and one junior world championship.
In 1995, the French cycling golden girl recorded the world's fastest time in the 500m standing start time-trial, pedalling the distance in 34.017 seconds in Bogota, Colombia.
The 500-metre time-trial from standing start is not an Olympic event.
In the men's 4km team-pursuit, the Italians won gold, beating the French quartet in the final by 1.78sec in a time of 4min 2.752sec.
The Italian squad of Adler Capelli, Cristiano Citton, Andrea Colinelli and Mauro Trentini failed to beat their own world record of 4min 00.958sec set here on Saturday afternoon in the semi-finals.