Australian Mark Webber will line up alongside on the front row for his last race in Europe while Germany's Nico Hulkenberg sprung a huge surprise by grabbing third place on the grid for Ferrari-powered Sauber.
Ferrari's Fernando Alonso, Vettel's closest title rival with a 46 point gap to make up, qualified fifth and behind Brazilian team mate Felipe Massa with Ferrari president Luca di Montezemolo watching.
Hamilton, last year's winner for McLaren who had entered the weekend chasing a fifth successive pole, failed to make the top 10 and starts 12th for Mercedes.
The pole was the 40th of Vettel's F1 career and came at a track that Red Bull principal Christian Horner said only last month was something of an Achilles heel for the team along with Belgium.
However, Vettel won in Belgium and the 26-year-old German took his first Formula One victory at Monza in 2008 for Toro Rosso while also winning for Red Bull in 2011.
"This weekend, the car was fantastic. We had a really strong pace yesterday and we were able to take that into qualifying today," he told reporters.
"In the end, it's a bit of a surprise to have both cars on front row at a place where historically we've had bad years. This year it seems to work well and hopefully we'll have a good race tomorrow."
Hamilton was left shaking his head.
"I just drove like an idiot. That's the worst I've driven for a long, long time. I'm sorry to the team," he told reporters.
"I just didn't drive well. There's not really much more to say. I was quick in Q1 (the first phase) and then I don't know. I'll do whatever I can from where I am but it's going to be tough," added the 2008 champion.
Hulkenberg, who has been seen as a possible replacement for Massa at Ferrari at the end of the season, did his chances no harm with a sensational performance for his struggling Swiss team.
The German seemed as surprised as anyone.
"I didn't expect it, especially after a very difficult Friday. The guys have done a fantastic job to turn the car around," he said.
Massa, who has not won a race since 2008, made clear he would be no hindrance to Alonso on Sunday.
"He's fighting for the championship, I'm not fighting, I'll do whatever is important for the team," said the Brazilian.