Nadal had slipped to the No. 2 position despite his 11th French Open win after Federer took the Stuttgart Cup making it the sixth time the Swiss will grab the No 1 rankings in his career.
The Swiss will drop to second in the world behind Rafael Nadal, who is playing no tune-up events prior to the start of Wimbledon a week from Monday. The 36-year-old booked his 12th career final at the ATP Halle Open after he registered a convincing win over Ukrainian Denis Kudla 7-6 (7/1), 7-5 in the semi-final.
If I had lost the opening set, it would have been tough for me to win.
Federer made a strong come back in the second set and won it 6-3.
This was his first victory over Federer in their third career match. "I played what I thought was my best match of week today".
Elsewhere, a lot will be expected of world number three Alexander Zverev who made the fourth round past year.
Former world number one Novak Djokovic moved up from five placed to number 17.
There, Roger was beaten by home favorite Tim Henman in a mighty close match that lasted three hours and 13 minutes, missing a chance to play in Wimbledon semi-final after winning the first match at the tournament that year.
Both defeats were painful for Cilic, who lost a final set tie-break against Feliciano Lopez at Queen's and broke down in tears during his injury-plagued Wimbledon loss to Roger Federer.
"It was a big relief because there was pressure from all sides, especially from myself, to do better in Slams", said the 21-year-old before dedicating the win to former coach Peter Carter who died in a auto crash in South Africa earlier in the year.