Hesjedal, who is from Victoria, is the first Canadian to ever lead the race.
Domenico Pozzovivo took the eighth stage thanks to a break just under seven kilometres from the finish of the gruelling 229-kilometre leg from Sulmona to Lago Laceno to win in six hours six minutes five seconds.
The Colnago-CSF Inox rider was 23 seconds ahead of Movistar's Benat Intxausti.
"It's not possible, I can't believe it," Pozzovivo said. "I've been dreaming of this since last autumn. And it happened how I wanted it to, with a clear victory. I rode beside (Movistar cyclist Giovanni) Visconti and I told him I'm going now and we'll see each other after the finish. Giovanni laughed at me and just said try not to bring anyone close to you ... that's what I did and I realized my dream."
Joaquin Rodriguez led the peloton over the line 27 seconds after Pozzovivo to close the gap on Hesjedal to nine seconds in the overall standings.
"That was a tough day. Really happy to hang onto the jersey," said Hesjedal, who rides for Garmin-Barracuda. "The team was incredible again and really showed our strength in the hard beginning of the stage.
"We were happy with the break and the guys did a great job defending the jersey. I just had to follow my closest competitors on the final climb and I was able to do that. Mission accomplished."
Defending champion Michele Scarponi moved up into 12th, 54 seconds behind Hesjedal, while two-time winner Ivan Basso is in sixth, 40 seconds behind the Garmin-Barracuda cyclist.
Andrey Amador, Julien Berard, Tomasz Marczynski and Miguel Minguez broke early and had an advantage of 11 minutes about 100 kilometres into the stage.
However, as expected, the stage was decided on the ascent of the category 2 Colle Molella climb to the finish. The 9.9-kilometre climb has an average gradient of 6.0 per cent and includes several hairpin turns with gradients of between 10 per cent and 12 per cent.
Pozzovivo timed his attack to perfection, just under three kilometres from the top of the climb and powered ahead to claim the victory. Now he's looking forward to the other big climbs later in the race.
"I would like to do well at the Piani dei Resinelli (on stage 15) and the Stelvio (on stage 20)," he said. "The Stelvio Pass is a bit like home for me. Seeing as it's been a long while that I haven't raced it I know they are waiting for me and I don't want to disappoint them."
RadioShack's Daniele Bennati had a fever and did not start. Neither did Dennis van Winden, who had a knee problem. Eight riders have now quit the Giro after Gianni Meersman pulled out on Saturday and Pablo Lastras Garcia, Tyler Farrar, Thor Hushovd and Romain Feillu retired on Friday.
Dominique Rollin of Boucherville, Que., was 100th to go up six places to 144th overall. Svein Tuft of Langely, B.C., was well back at 150th for the stage to remain 161st overall.
Christian Meier of Sussex, N.B., finished 179th to improve to 135th overall.
The Giro continues Monday with a sprinter's stage, the 171-kilometre leg from San Giorgio del Sannio to Frosinone.