Yadav impressed with a classy 46 during India's four-wicket loss to Australia in the opening match of their three-game series at Mohali on Tuesday. The knock helped him to close in on Pakistan opener Mohammad Rizwan at the top of the T20I batter's chart.
The right-hander dethroned Babar from the third spot, with Rizwan now just 45 rating points ahead of of him.
Rizwan hit a half-century in Pakistan's loss to England in Karachi on Tuesday and maintains a narrow advantage at the top of the rankings with a career-high total of 825 rating points.
South Africa's Aiden Markram (792 rating points) is in the second position ahead of Yadav (780).
Babar dropped to fourth in the latest rankings following his below par Asia Cup and a 31 against England in the series opener. England's Dawid Malan (725) and Australia skipper Aaron Finch (715) complete the top 6.
Besides Yadav, star India all-rounder Hardik Pandya jumped 22 places to 65th overall following his superb 71 not out against Australia, while team-mate Axar Patel shot up 24 spots to 33rd in the list for bowlers after he collected three wickets on Tuesday.
England spinner Adil Rashid is third and on the coat-tails of Hazlewood and second-placed Tabraiz Shamsi following a two-wicket haul against Pakistan, while returning veteran Alex Hales re-enters the T20I batter rankings following a three-year hiatus from 20-over international cricket.
Pakistan quick Haris Rauf moves up four spots to 21st on the latest list for T20I bowlers list after a strong showing against England, while team-mate Mohammad Nawaz jumps three places to 31st.