On the opening day of the six-day track competition, riders set six world records in two different events on the super fast track made of Siberian pine wood.
Chinese and British women improved the team's sprint world record three times in the space of an hour on Thursday, before Britain broke its own men's team pursuit world record with a time of 3 minutes, 52.499 seconds during the qualification round.
The British team of Geraint Thomas, Ed Clancy, Steven Burke and Peter Kennaugh lowered the mark of 3:53.295 that they set at the world championships in Melbourne, Australia, earlier this year.
The reigning Olympic champions were cheered on by a capacity crowd of 6,000 fans at the Velodrome that included cyclist Mark Cavendish, Prince William and his wife, Kate.
"We wanted to qualify with the fastest time," Thomas said. "We can still tidy up our race. We knew we could do 3:52. We can go faster."
Britain then broke its own men's team sprint world record with a time of 42.747 seconds to reach the final against France.
Philip Hindes, Jason Kenny and Chris Hoy lowered the mark of 42.914 that Germany had set on Dec. 1, 2011, at a World Cup meet in Cali, Colombia.
In the final, the British squad broke the record again, riding in 42.600 seconds to win its second straight Olympic gold medal in the race, the most explosive event of the Olympic track program.
"It's very overwhelming really. I thought my first win in Athens was the most memorable but this is my greatest win," Hoy said after collecting a fifth Olympic gold medal. "We didn't expect to win. We knew if we got it right we could do it. Coming into the Games has reminded me of Beijing four years ago. Everyone's been feeding off each other."
Germany took bronze by beating world champion Australia with a time of 43.209.
The French looked dejected as the British riders celebrated with their raucous fans.
"They had not beaten us in four years, actually since Beijing," said Michael D'Almeida. "Why? How? We don't know. Actually they have found their 'kick', we have to find ours if we are to improve. They know how to prepare for the Games, it is their objective. They were stronger than us."
Unlike the team pursuit, where riders have to ride in a perfect line, the sprint is all about speed and raw power. Each rider completes a lap at the front as fast as possible, and medals can be won or lost by a thousandth of a second.
Gong and Guo beat the team sprint record twice — in qualifying then in the first round.
Victoria Pendleton and Jessica Varnish of Britain were the first to improve on the previous mark of 32.549 set by Germany in April at the world championships, clocking 32.526 seconds over the two laps of the Velodrome in qualifying.
Their performance set off loud applause and whistles in the stands packed with fans holding Union Jacks, but the British fans were quickly silenced by the Chinese pairing of Gong Jinjie and Guo Shuang.
The Chinese produced an even faster effort to establish a world record of 32.447 seconds. They then posted another record of 32.422 to qualify for the final against Kristina Vogel and Miriam Welte of Germany.
The Chinese were the fastest in the match for the gold medal but were relegated for an illegal relay and had to settle for silver.
Varnish and Pendleton were also relegated for making an early change in the first round, seeing their medal hopes vanish.
"It's one of those things," a tearful Pendleton said. "It's quicker than a blink of an eye. You have to stick by the rules. It's not Jess' fault, it's not my fault, we're both partly to blame, really. We were probably just a bit too overwhelmed by the whole thing, a bit excited about our ride. We should have just kept a lid on it."
During the two-lap race, the leadoff rider is required to give way to the second rider at a certain point on the track. British cycling officials could be seen conferring with judges at the London Velodrome, and performance director Dave Brailsford was seen shaking his head.
The crowd of 6,000 fans booed when it was announced the British team had been relegated.
The women's team sprint world record had already been broken twice in the London Velodrome at a World Cup event in February before Vogel and Welte reclaimed it at the worlds.
AP Sports Writer Dave Skretta contributed to this report.