The first of eight summit finishes in this year's Vuelta saw Movistar's Valverde underline his GC credentials after dancing clear of his rivals on the 10% slopes of the final climb of the 168km stage from Benalmadena to La Zubia.
Team Sky's Froome and Tinkoff-Saxo's Contador rallied to finish on the back wheel of their rival, but Spain's Joaquim Rodriguez (Katusha) conceded seven seconds for his fourth place while race favourite Nairo Quintana of Colombia came home 13 seconds down in fifth.
Bonus seconds at the summit means Valverde now leads his Movistar team-mate Quintana by 15 seconds in the overall standings. Contador rises to third place at 18 seconds, four seconds ahead of Froome.
In a thrilling finale Rodriguez was first to attack with seven-hundred metres remaining after a group of main favourites had formed in the searing heat of Granada in southern Spain.
Valverde was first to hold Rodriguez's wheel before Froome, Contador and Quintana all edged ahead of the leading group to form a formidable quintet on the front of the race.
Staying in the saddle and riding at a typically high cadence, Froome span the pedals to surge clear inside the final two-hundred metres as Quintana seemed content to let his rivals do battle for the victory.
Valverde, however, had the strongest kick after the leg-sapping 4.3km climb from the town of La Zubia. Froome and Contador - the two fallen favourites for July's Tour de France - crossed the line together for second and third respectively, while Rodriguez and Giro d'Italia winner Quintana limited their losses in their wake.
Third in the Giro, Italy's Fabio Aru (Astana) was sixth at 18 seconds, six seconds clear of of Colombian youngster Esteban Chaves (Orica-GreenEdge). Daniel Navarro (Codifis), Mikel Nieve (Sky) and Robert Gesink (Belkin) completed the top ten and finished within 33 seconds of the victor Valverde.
Ireland's Dan Martin (Garmin-Sharp) was 59 seconds down and one place ahead of Colombian Rigoberto Uran (Omega Pharma-Quick Step). The Giro runner-up faded on the final climb to come home 1:04 down, three seconds ahead of British youngster Adam Yates (Orica-GreenEdge).
Australian veteran Cadel Evans (BMC) finished over two minutes back, while Garmin-Sharp pair Ryder Hesjedal and Andrew Talansky lost more than three and four minutes respectively.
If the race's first mountain finish - albeit hardly a brutal one - proved anything it was that the injuries picked up by Froome and Contador in last month's Tour have clearly not hindered either rider's preparation for the third and final Grand Tour of the season. But they will both have their work cut out to tame the threat of Movistar pair, Valverde and Quintana, who look in ominous form.
TWO-MAN BREAK: For the second successive day, Dutchman Pim Ligthart (Lotto Belisol) broke clear shortly after the start with one other rider - this time the Spaniard Lluis Mas Bonet (Caja Rural). Numerous riders tried to join the two leaders - including Frenchman Thibaut Pinot (FDJ) and Slovakian Peter Sagan (Cannondale) - but to no avail.
The leading duo established a maximum lead of almost fourteen and a half minutes as Mas Bonet consolidated his lead in the polka dot jersey competition by taking maximum points over the first two climbs of the day.
Some fierce pace-setting by Garmin-Sharp and Katusha saw the lead whittled down fast. Mas Bonnet was caught shortly after the start of the final climb - with 4km remaining - while Ligthart held on for a bit longer before being momentarily joined by French veteran Christophe Le Mevel (Cofidis) and then the main pack.
The leading group of favourites was reduced to just a dozen riders as bodies continued to be shed off the back thanks to the debilitating tempo being dictated by the impressive Valverde.
Fourth in the Tour de France, 34-year-old Valverde was by considerably more animated than his Movistar team-mate Quintana, who seemed content to let his colleague go for personal glory.
RIDE OF THE DAY: Valverde was instrumental in blowing apart the race on the final climb and it was fitting that he - of all the race favourites - took the victory. By moving into the red jersey, Valverde has underlined his credentials for the GC - and it will be interesting to watch the dynamic within Movistar from this moment forward. Quintana will surely remain the team's main man - but Valverde has shown he will not be budged lightly.
DAY TO FORGET: Garmin-Sharp did much of the chasing in the peloton to reel in the two escapees - but in the end, the American team had little to show for it. So feisty earlier in the race, Dan Martin toiled on the final climb, while both Ryder Hesjedal and Andrew Talansky fell even further out of the reckoning.
COMING UP: Friday's 169km stage seven from Alhendin to Alcaudete concludes with another uphill finish but nothing as testing as Thursday's offering. Two categorised climbs and some rolling roads make this one ideal for a breakaway to finally stick.
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