The two-time defending world champion, who has won the race for the past two seasons after starting from pole, clocked the day's best lap in the second session of one minute, 39.334 seconds on the 5.4-kilometre (3.3-mile) Valencia Street Circuit that weaves its way through the America's Cup Harbor.
The overcast sky that had kept the track cool in the morning session cleared up by the afternoon, with the sun raising track temperatures to 40 degrees Celsius (104 F). Even higher temperatures are forecast for the weekend.
"I am quite happy with what we did," said Vettel. "I think positions might change quite a bit before Sunday. It is surprisingly cool today, although it's still warm. I think Sunday will be hotter, it could make a difference.
"The most important thing is to get in a good day of testing. It is pretty tricky here, the track gets used once a year. This morning was very dusty, very slippery and a lot of win. This afternoon was more consistent."
Force India driver Nico Hulkenberg's best effort left him just 0.131 seconds adrift of Vettel, followed by Kamui Kobayashi of Sauber at 0.261 seconds back.
Mercedes' Michael Schumacher overcame more mechanical problems that have plagued him all season to record the fourth fastest time, just 0.267 seconds behind Vettel.
After marking a good lap, the seven-time champion had to quickly pit, telling his Mercedes team over the radio that he had "drive issues." Yet unlike the previous race in Montreal when a faulty DRS flap on his car eliminated him from the Canadian GP, his mechanics quickly solved the problem and he was able to return to the track and make a strong showing.
"The second session initially started with an issue with the clutch but it turned out very ok," Schumacher said. "Of course we are aware that it will be a challenge for everybody, especially to keep the rear tires alive but this is as expected. Let's see what we can do tomorrow."
Ferrari's Fernando Alonso was seventh, while points leader Lewis Hamilton was 14th, just ahead of Alonso's teammate Felipe Massa.
The top 15 drivers all recorded times within a one-second margin.
Vettel showed he has not lost his mastery of one of F1's trickiest circuits. While several drivers locked up their tires on the track's 25 curves- the most of any track in F1 - he set the benchmark time that couldn't be matched with 35 minutes to go.
Still, Vettel was hesitant to draw too many conclusions.
"It's very close these days, we have seen many things can happen. It is not entirely clear yet what the right strategy is for Sunday, but we will hopefully make another step tomorrow and see where we are in terms of pace, how competitive we are," he said.
Pastor Maldonado set the fastest lap in the morning, but his mark was blown away in the second session. The Williams driver had the 13th best lap in the afternoon.
After seven different winners in as many races, the championship is tightly contested with only three points separating Hamilton from Alonso and Vettel at the top of the standings.
Qualifying for Sunday's race is on Saturday after the final practice session.
Spanish driver Pedro de la Rosa was at the centre of the day's only major scare midway through the second session.
The former McLaren driver was unable to pull out of a hard turn and slammed his HRT car into the wall, bending back its front left wheel. The veteran was unhurt and walked away from the crash.
"I made a mistake and went off the track which, unfortunately, damaged the entire front suspension," said De la Rosa. "I'm well and my mechanics are already repairing the car. Tomorrow everything will be ready again to give it our best once more in front of our home fans."