The Red Bull driver, running an upgraded rear-end package on the RB8 that featured re-sculpted sidepods and new rear wing endplates, made the most of the new additions to go quickest with a 1m39.335s, 0.131 seconds ahead of Force India's Nico Hulkenberg and Sauber's Kamui Kobayashi.
Session one pacesetter Pastor Maldonado (Williams) began the bidding six minutes into the session with a 1m41.133s, but that time was never likely to last long and within a minute Kobayashi had moved ahead in the Sauber.
Jenson Button's McLaren then went top with a 1m40.744s before improving that to a 1m40.522s just before the quarter hour mark. Lewis Hamilton quickly moved ahead with a 1m40.397s and that stood for nearly 10 minutes before the rapid-looking Mercedes of Michael Schumacher emerged from the pits and recorded a 1m40.169s.
Having set that time, Schumacher was straight on the radio complaining of 'drive' issues. It was not a big problem though, as he was back on track within 10 minutes.
As the session crept towards the halfway mark, Button slapped on a set of soft Pirellis and became the first man to dip below 1m40s with a 1m39.990s. That though was put into context when Nico Rosberg eclipsed the time on the eighth lap of his own prime medium tyre run.
Ferrari's Fernando Alonso had just moved to the top of the times (1m39.733s), again on softs, when Pedro de la Rosa hit the barriers hard. Having clattered the kerbs at Turn 13, the front-left of the HRT was significantly damaged as it went in front on into the tyres.
There was a brief lull as the circuit was cleared before Schumacher emerged from the pits and set a time of 1m39.601s. It was then, finally, that Vettel produced his 1m39.334s flyer, which settled the matter, as teams switched to long-run modes and gathered degradation data.
Behind Vettel, Hulkenberg and Kobayashi snuck ahead of Schumacher with two very impressive laps that hinted at the potential for another mixed up grid on Saturday.
Bruno Senna was fifth fastest, to further enhance the view that Williams is a contender in Valencia ahead of Hulkenberg's Force India team-mate Paul di Resta.
Romain Grosjean was the fastest Lotus driver in seventh ahead of Mark Webber and Rosberg.
That meant that both McLaren drivers, Kimi Raikkonen and Felipe Massa all loitered outside the top 10 and the top 15 runners were covered by 0.910s.