Gauff, the American third seed, had lost her opener two days prior to Pegula but was far more clinical against Paolini, whose second singles defeat of the week means she has no chance of advancing to the semi-finals.
The Italian is still in contention in doubles, though alongside her partner, Sara Errani.
"I'm really happy with how I played today, definitely a turnaround from my first match," said Gauff, who posted her 10th top-10 win of the season.
Sabalenka recovered from an early break in the deciding set to avenge her recent loss to Pegula in the Wuhan semi-finals and strengthen her chances of qualifying for the final four in Riyadh.
The Belarusian world number one could only convert four of the 16 break points she created, as Pegula fought until the bitter end.
A total of 10 of Pegula's last 11 matches have gone to three sets. This was just her second three-set loss within that stretch.
"She's an incredible player, she always pushes me to that limit," said Sabalenka of her fifth-seeded opponent.
"In the third set, I just told myself to go for it. She pushed me, and I love it.
"I love playing against her because it's always great matches, great level, great points. I was really enjoying that she was pushing me to the next level."
All to play for in Stefanie Graf Group
It will be all to play for in the Stefanie Graf Group on Thursday, with Sabalenka, Gauff and Pegula all still in contention for semi-final tickets.
Against Pegula in her opener on Sunday, Gauff struggled with her serve, committing 17 double faults and winning just 28 per cent of the points behind her second delivery.
Her performance in the first set of her second match was already a significant improvement, as she won nine of 11 points on her second serve, misfiring just twice for two double faults.
The 21-year-old leapt to a 3-0 lead and, despite Paolini's attempted comeback, was able to reclaim her advantage to take the opening set in 40 minutes.
The second set was a straightforward affair as Gauff notched two breaks of serve en route to her second win in five meetings with the Italian this season.
"I think only three doubles today compared to 17 - that's a big difference," said the two-time grand slam champion.
"I think it just shows that I have the ability to serve like this, and it definitely gives me confidence."
Gauff hired biomechanics coach Gavin MacMillan in late August, right before the US Open, to help fix technical issues with her serve.
She said her approach after her opening defeat was to go "back to the basics and try not to overcomplicate things".
"I think I was on the trajectory in China serving great, and I think maybe trying to serve a little bit too hard in that match against Jess," Gauff said.
"So today I just tried to slow it down, and let's start with that approach first, and obviously if I have to go bigger, I have the ability to do that."