Cal Crutchlow meanwhile bounced back from his brace of Saturday morning crashes to secure a front-row start for his home race, ahead of Dani Pedrosa, Stefan Bradl and Valentino Rossi.
Yamaha rider Lorenzo sparked off an unbelievable fight with Marquez when he fired in a 2m01.497s on his first lap of the shootout, decimating Casey Stoner's 2011 lap record.
Marquez though responded instantly and lowered the benchmark further, before Lorenzo reclaimed the initiative with a 2m01.217s on the final lap of his first run.
After pitting for fresh rubber the duo's spectacular head-to-head resumed, with Lorenzo instantly breaking into the 2m00s bracket.
Still Marquez had an answer, and his own first flyer - complete with several lurid moments - was a 2m00.691s, some 0.128 seconds faster than Lorenzo, and nearly 1.5s than the previous lap record.
Honda's Spaniard, chasing a fifth straight win at Silverstone, will therefore start from pole for the fifth time this year.
Crutchlow had no answer to the pace of the front two, but booked third for Tech 3 courtesy of a late 2m01.425s.
LCR's Bradl meanwhile edged out factory counterpart Pedrosa to fourth, with Rossi a further four tenths of a second down the road in sixth.
He was almost shunted down to seventh by Ducati's Andrea Dovizioso, but the Italian missed out on a second row start by just 0.014s.
Instead he shared the third row with Gresini's Alvaro Bautista and team-mate Nicky Hayden.
Tech 3's Bradley Smith will start from 10th, and Colin Edwards from 11th, after Aleix Espargaro was unable to compete in Q2 following a nasty highside in practice four that resulted in a compound fracture of his little finger.
Edwards was only just able to squeeze through into Q2, withstanding a late charge from Espargaro's Aspar stable-mate Randy de Puniet, who missed out by just 0.006s.