Vettel bettered Hamilton’s time of 1m34.974 in the McLaren by just 0.104 seconds on the very last lap at Sepang.
Red Bull team principal Christian Horner confirmed his drivers used KERS for the first time this season, which undoubtedly helped Vettel to secure his second pole of 2011.
Mark Webber sealed third for Red Bull, three tenths slower than his team-mate, with Jenson Button in the second McLaren just two-hundredths of a second behind.
Ferrari’s Fernando Alonso secured fifth, six tenths slower than Button, with the top five on the grid a repeat of the line-up in Melbourne two weeks ago.
Nick Heidfeld bounced back from disappointment in Australia to qualify sixth for Renault, with team-mate Vitaly Petrov, who secured his maiden podium in Melbourne, two tenths slower in eighth.
Felipe Massa was 1.2s off the pole time in seventh for Ferrari and Nico Rosberg was ninth ahead of SauberÃ¢â‚¬â„¢s Kamui Kobayashi, who rounded out the top 10.
Rosberg sneaked into the Q3 showdown with a late Q2 run which eliminated team-mate Michael Schumacher.
Hispania got the qualifying session under way as Tonio Liuzzi was the first driver to leave the garage within seconds of the first session.
And despite completing the fewest laps of all teams, both Liuzzi and team-mate Narain Karthikeyan were comfortably within the 107 per cent time of FerrariÃ¢â‚¬â„¢s Massa to qualify for the first time in 2011.
An added bonus for the Spanish team is that they were just 0.9s slower than the quickest Virgin Racing car of Timo Glock, despite barely getting the F111 ready for the start of the season.
There were few surprises in the first session with Lotus comfortably ahead of Virgin by two seconds, while WilliamsÃ¢â‚¬â„¢ Pastor Maldonado was the unlucky driver to finish 18th to drop out, six tenths slower than Adrian Sutil.
Button topped the time sheets in Q2 from Hamilton, Vettel and Webber, as Renault opted to do just a single qualifying run to save tyres for the race.
But the real battle was between the midfield teams hoping to break into the top 10, and Schumacher appeared to have plenty of time left to guarantee his place but was slower than this Q1 time as Rosberg improved late in the session.
Despite both Toro Rosso drivers improving on their Q1 times, SÃƒÂ©bastien Buemi was a tenth slower than Schumacher, almost two tenths quicker than team-mate Jaime Alguersuari.
Force IndiaÃ¢â‚¬â„¢s Paul di Resta had a solid qualifying session in his first full weekend at Sepang to take 14th, again trumping experienced team-mate Adrian Sutil, who was two tenths slower in 17th.
Rubens Barrichello was able to find an additional seven tenths in Q2, but his best was only good enough for P15, ahead of Sauber rookie Sergio PÃƒÂ©rez.
The Malaysian Grand Prix starts on Sunday at 09:00 BST.
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BIOGRAPHY: Ethan Hazard
BIOGRAPHY: Daniel Sturridge