Dozens of people gathered at the military hospital in Santiago where he was being treated to celebrate.
He had been serving a sentence of more than 500 years for human rights abuses.
Victims' families say Dina was behind more than half the cases of murder, disappearance and torture under the Pinochet government.
Contreras was one of the main architects of Plan Condor, a co-ordinated campaign of political repression and assassination by military governments in the southern cone of South America.
It is said to have killed tens of thousands of people across the region.
A crowd celebrates the death of Chile's