Alfredsson, the overnight leader by two strokes, hit a two-over 74 to finish on 281, seven under, together with Donna Andrews, who hit 71. Her fellow American, Pat Bradley, made a charge before a double-bogey at the 16th left her tied with Japan's Hiromi Kobayashi at five-under on 283.
Merten, a 33-year-old with only two previous tour titles, chipped in from 70ft for a birdie on the 407-yard, par-four 16th, which had played the toughest of any hole on the 6,311-yard course all week.
Following a par three on the 17th, Merten hit a six-iron approach to within four feet of the hole on the 18th, whose 400 yards had proved the second most difficult, and putted in for a birdie to take a winning lead.
Merten said of the final three holes: 'If you try to make birdies on those, it can blow up in your face. I just hit some shots that I'll probably never be able to hit again.' Her chip-in on the 16th with a nine-iron was doubly impressive because it came on a green that on Sunday morning was under water following a storm overnight.
'That's where it all started, right?' Merten said. 'I saw the shot, I just visualised what I had to do. It's fun to miss the greens and pull off shots like that.'
Merten started her charge with a birdie on the 349-yard, par-four eighth, holing a 60ft uphill putt. 'I was just trying to get it close. I couldn't believe it,' she said. 'It got me going.' She also birdied the ninth and 10th to gain a share of the lead before a bogey on the par-five 11th dropped her off the pace.
Her chip-in at the 16th brought her level with Alfredsson, Andrews and Bradley, but as the others faded with bogeys on the closing holes, she took over. Alfredsson left several putts short throughout the final round and had just one birdie against three bogeys, including the eighth and 16th, where Merten birdied.
The defending champion, Patty Sheehan, finished alone in sixth on 284 after carding a 71. Sheehan's downfall was the 18th, which she completed in par but bogeyed during the first two rounds and triple-bogeyed on Saturday.