Yamaha's Jorge Lorenzo was third, albeit six tenths of a second down on Pedrosa, while Gresini's Alvaro Bautista beat Valentino Rossi to fourth late on.
Tech 3's Cal Crutchlow was fifth fastest, but more than one second off the ultimate pace.
Pedrosa and Marquez had started the weekend in race direction, with Marquez given one penalty point following his clash with Pedrosa in the Aragon Grand Prix.
That decision means the rookie championship leader is potentially just one infraction away from being forced to start from the back of the grid.
He showed little sign of tempering his natural aggression however, pulling off a typically ballsy move on Nicky Hayden during the 40-minute session.
Marquez was unable to do anything about Pedrosa however, with the older Spaniard - who won at Sepang last year - hitting the front with half an hour to run with a 2m01.229s that would prove unbeaten for the remainder.
Lorenzo, who had been top until Pedrosa's surge, had to settle for third.
Rossi had also enjoyed a spell at the top early on, but was shuffled down the order by his factory rivals and then lost fourth to Bautista in the final minutes.
Stefan Bradl beat Ducati's Nicky Hayden to seventh, with Bradley Smith and Andrea Dovizioso rounding out the top 10 ahead of Colin Edwards, who finished top of the CRT pile.
Dovizioso pulled off an excellent save at Turn 12 in the final minute of what was otherwise an incident-free session.