Hamilton's flying lap of one minute 22.188 seconds set a new record at Albert Park but was only 0.268 seconds in front of German Vettel, offering the tantalising prospect of a competitive championship after three years of domination by the Silver Arrows.
Lewis Hamilton took pole for Mercedes at the season-opening Australian Grand Prix on Saturday but Sebastian Vettel raised hope of a Ferrari renaissance by grabbing a spot on the front row.
Hamilton's flying lap of one minute 22.188 seconds set a new record at Albert Park but was only 0.268 seconds in front of German Vettel, offering the tantalising prospect of a competitive championship after three years of domination by the Silver Arrows.
Vettel left Hamilton's new team mate Valtteri Bottas frustrated in the second row, the meat in a Ferrari sandwich next to fourth fastest Kimi Raikkonen.
On a cloudy day with the merest hint of rain, 32-year-old Hamilton grabbed his 62nd pole in Formula One, holding firm as Vettel and Bottas pushed hard late in the session.
After it wrapped up, the Briton rolled around the lakeside track with his index finger raised, 10 years after his brilliant debut at the same circuit when he qualified fourth for McLaren and finished third in the race.
"It has been a fantastic weekend so far," Hamilton told reporters.
"I am really proud of my team, the guys have worked so hard to make the car what it is today.
"Valtteri has done a great job and it is great for Mercedes. It is close between us all and it will be a tight race."
After Hamilton dominated Friday practice, Vettel topped the timesheets in the final session on Saturday but rued a mistake in his fastest qualifying lap.
"I lost it a bit in turn one... Anyway, great job," Vettel said on his team radio.
It was still encouraging enough for him to declare that the 'scuderia' could contend in Sunday's race, having shown impressive pace and reliability during winter testing.
Red Bull's Max Verstappen qualified fifth but it was a forgettable day for his team mate Daniel Ricciardo, whose hopes of becoming the race's first home winner spun out early in Q3.
He took a spin at turn 14, ended up in the gravel and will start 10th on the grid.
"I'm alright, sorry guys," he said on the team radio before his car was towed off the track.
With McLaren plagued by power unit and reliability problems during winter testing, it was something of a surprise that twice champion Fernando Alonso survived the cut to Q2 and will start 13th on the grid.
His rookie teammate Stoffel Vandoorne will start 18th for the Honda-powered team.
Canadian teenager Lance Stroll has had a memorable, if drama-filled, debut for Williams and the 18-year-old was 19th fastest in Q1.
He will start last on the grid, however, due to a five-place penalty for needing a new gearbox following a crash during practice earlier on Saturday.
Antonio Giovinazzi, a late replacement for Pascal Wehrlein after the German pulled out with fitness concerns, will start 16th for Sauber after an impressive debut in qualifying, one behind teammate Marcus Ericsson.
