Mark Webber was third for Red Bull at the new circuit near Delhi ahead of Fernando Alonso's Ferrari.
Jenson Button will line up fourth after stewards decided not to penalise him for a potential infringement.
Ferrari's Felipe Massa crashed immediately in front of Button and while the McLaren driver was concerned he might be penalised - as Hamilton had been on Friday - for not slowing down, the stewards took no action because he backed off as soon as he could.
"I saw the tyre marks and the smoke but I was already in the yellow-flag zone," Button said before learning of the decision. "I backed off [afterwards]."
Indian GP qualifying - top three drivers
Hamilton's hopes of starting on pole for the second race in a row ended on Friday when he was handed a three-place grid penalty for a separate incident involving flags.
McLaren's 2008 champion had set his fastest lap when yellow flags were out to warn the drivers that marshals were on track at the last corner to retrieve Pastor Maldonado's stranded Williams.
Despite his penalty, Hamilton was pleased with his performance: "It's been a good day for me. I'm surprised we could split the Red Bulls.
"The penalty was a silly mistake for myself but overtaking should be easier and I'm still optimistic regardless of where I start."
Button had already put himself on the back foot after dropping to 16th in the first phase of qualifying because of a poor first timed lap.
"For some reason I've got no grip, I'm really, really struggling," said Button, who had to use a new set of the faster soft tyres to climb back up to third, on the pit-to-car radio.
That decision ended up compromising him and he came out for only a single stint on track in the final phase of qualifying to ensure he did not use up too many sets of tyres before the race.
"This morning the car felt good but on the hard tyre I couldn't find any grip or on the soft tyre either," added Button, who will start in fourth, ahead of Massa, because of Hamilton's penalty.
"I didn't really get a clear lap either. I think because the tyres aren't working on the first lap people are backing off and trying again, so there were cars everywhere."
Fernando Alonso optimistic after strong qualifying for Indian GP
While his rivals toiled, Vettel led all three stages of qualifying and coolly collected his 13th pole position of the season.
His pole saw Red Bull set a new all-time record for 16 pole positions in a single season.
"The car was fantastic since yesterday and throughout qualifying," said Vettel. "In the end there was a little bit left in the first sector.
"I'm extremely happy and it's good to be here. It will be a very interesting race on a challenging circuit.
"You have to really make sure you stay on the line and the circuit here is not forgiving mistakes. It's not easy but I enjoy what I do and I was excited when I came here."
Alonso, who will start third, was pleasantly surprised to be only 0.341secs slower than Vettel.
"With Hamilton's penalty, starting third will be even better," the Spaniard said. "Normally our strong point is on Sunday with race pace so I'm optimistic."
Massa was sixth despite the clumsy crash that saw him break a front wing, a part that has attracted plenty of attention in the last two days.
The team are testing a development front wing for 2012 in the final races of this season but during practice the wing on Massa's car oscillated dramatically, so much so that it kicked up sparks.
Last season, suspicions about the flexibility of the Red Bull front wing led to governing body the FIA increasing front-wing load tests.
Nico Rosberg qualified in seventh while Mercedes team-mate - and India's favourite F1 driver - Michael Schumacher lines up 11th, complaining of tyre vibrations.
Schumacher and Di Resta were bumped up because Renault's Vitaly Petrov, who qualified in 11th, drops to 16th after receiving a five-place grid penalty for his part in a collision in Korea
There were backslaps in the Toro Rosso garage at the end of the session even though neither Sebastien Buemi, who starts ninth, nor Jaime Alguersuari went out to set a timed lap.
Sauber left it late to send out their drivers in the first phase of qualifying and Kamui Kobayashi paid the price and will line up in 18th.
"I had traffic behind Massa and no luck," said the Japanese driver, whose team-mate Sergio Perez will start 20th after receiving a three-place grid penalty for the same offence as Hamilton.
Narain Karthikeyan, who has replaced Vitantonio Liuzzi at HRT for his home race, starts in 22nd after finishing 0.022secs behind his team-mate Daniel Ricciardo.
Both men were given five-place grid penalties - Karthikeyan for blocking Schumacher and Ricciardo for a gearbox change.
"It's been a while and it's very emotional driving in my country," Karthikeyan said. "I didn't really think I'd get the chance so everybody is happy."
Ricciardo will line up 22nd and Karthikeyan 23rd, ahead of Virgin's Timo Glock because the German failed to set a time within 107% of the fastest time in first qualifying, as required by the rules.
For the last two days, the drivers have been bedding in a racing line on the new asphalt but the Buddh International Circuit has been constructed amid farmland and keeping it clean is almost a thankless task.
"It's still dusty on and off line," said BBC chief F1 analyst Eddie Jordan. "This is the first time the drivers are fully in anger so I'm not surprised they've been sliding in and out the circuit."
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