Vettel was 0.479 seconds quicker than Valtteri Bottas with Lewis Hamilton in third 0.490 secs adrift.
Four-time world champion Hamilton, who has been out-paced by Bottas this weekend so far, was 0.029s further back.
The four-times champion German’s lap of one minute 23.380 seconds eclipsed his pole record of 1:23.529 set at the lakeside circuit in 2011 and was nearly half a second faster than both the Mercedes cars.
Ferrari’s Kimi Raikkonen was fourth, with Nico Hulkenberg fifth in his Renault. Red Bull’s local hero Daniel Ricciardo was sixth fastest, with his team mate Max Verstappen 12th.
Williams’ rookie driver Lance Stroll skidded into a barrier and blew a tyre, causing the red flag to be raised with 10 minutes left in the session.