Contador finished the demanding route from Belluno to Nevegal a huge 34 seconds ahead of Italy's Vincenzo Nibali just moments after the Liquigas rider had clocked what looked set to be the fastest time.
The Spaniard now leads Italy's Michele Scarponi (Lampre) by 4:58 in the overall standings with five stages left to race.
But Contador's second stage victory in this year's Giro was far from rudimentary: 13 seconds down on Nibali at the first time check after the initial 5.3km technical flat section, the 28-year-old looked to be under severe pressure on the ascent to Nevegal.
Constantly in and out of the saddle, and looking far from his usual composed self, Contador nevertheless put in a titanic display as he rode through throngs of local fans who had been bolstered by the strong performances of both Scarponi and Nibali.
Another Italian, Acqua & Sapone's Stefano Garzelli, had earlier moved into the provisional lead after a solid ride - only to see his hopes of winning a second successive Giro mountain time trial stage dashed by Venezuelan climber Jose Rujano (Androni Giocattoli).
Three minutes later, Nibali crossed the line to shave five seconds off Rujano's effort - before Scarponi, in the red points jersey, rode into second place, four seconds behind Nibali.
With no intermediate time check after 5.3km, Nibali looked set to open up his account for this year's race - especially in the light of Contador's apparent unease.
But the fact of the matter was further proof of Contador's total dominance in the 94th edition of the race: the Spaniard not only entered the closing straight with a chance to win, he did so with an almighty cushion.
The 34-second advantage he had over Nibali at the finish was bigger than any time gap on the day - and all but assured Contador's second Giro triumph and his sixth Grand Tour victory.
Speaking to reporters after his latest epic performance, Contador dedicated his win to compatriot Xavier Tondo, the former Movistar rider who was tragically killed on Monday in a freak domestic incident.
Contador now leads Scarponi by 4:58 in the GC, with Nibali completing the podium 5:45 down.
The Giro continues on Wednesday with an undulating 230km stage 17 which features the second-category Passo Tonale but finishes after a quick descent into Tirano.