Flakemore won the rainbow jersey by less than a second over Ireland's Ryan Mullen, completing the course in 43min 49sec.
Switzerland's Stefan Keung finished third, nine seconds behind Flakemore.
"This is fantastic, I am just super happy, this is a great start for the championships for Australia," said Flakemore.
"It is pretty special to be able to do this, particularly after Macey's (Stewart) win.
Flakemore, who narrowly missed out on a medal in 2013, was the third-to-last rider to depart on the wet 36km course. Mullen was already on the road, smashing the time checks and setting the time for Flakemore to beat.
The Australian trailed Mullen by a steady 20 seconds at the two intermediate time splits but he kept enough in the tank to claw back his deficit on the small climb. He rode the descent cautiously to preserve his position.
A final gut-busting effort to the line secured Flakemore the rainbow jersey by 0.48 of a second.
"I was 20 seconds down at both the checks, but I kept a lot in the tank for the last climb," said Flakemore. "It was super wet out there, so I took all the roundabouts cautiously, and the last downhill with caution, but it was the same for everyone."
South Africa's Louis Meintjes was the first of the 63 competitors to keep the hot seat warm for any length of time with a 44min 38sec benchmark.
Portugal's Rafael Reis lowered the time down to 44min 09sec and with the final 18 riders still to embark on the course, he held it for some time.
Reis held the leading position until Mullen could knock it down under 44 minutes with a time of 43min 50sec. Mullen barely had time to get comfortable before Flakemore rode to victory.
"This was my goal, what I wanted, I thought I could achieve I knew it
would be close," said Flakemore. "I knew if had a good ride I would
definitely be there.
"But I didn't know what to expect coming in
here, as there haven't been any time trials in Europe this year, so I
was unaware of my form.
"But I did well at the Tour d'lAvenir in
the end of August, so I knew it was a case of having to hold conditions
for another couple of weeks."
Under 23 Men Time Trial: 36.15km, Ponferrada
1 Campbell Flakemore (AUS) 43min 49sec
2 Ryan Mullen (IRL) 0:00:0.48
3 Stefan Kueng (SUI) 0:00:09
4 Rafael Reis (POR) 0:00:19
5 Maximillian Schachmann (GER) 0:00:37
6 Jonathan Dibben (GBR) 0:00:38
7 Andreas Vangstad (NOR) 0:00:44
8 Louis Meintjes (RSA) 0:00:48
9 Fredrik Frison (BEL) 0:01:07
10 James Oram (NZL) 0:01:09
The first five days of the UCI Road World Championships will be live-streamed on the Cycling Central website, while the final two days will be broadcast on SBS ONE and streamed online.