The Brit set off on a solo attack with 17km remaining of the 176km stage through the Dolomites from Tolmezzo to Sappada. It was another gruelling leg that saw the riders continuously climbing and descending.
Miguel Angel Lopez (Astana) edged out Tom Dumoulin (Sunweb) for second to lead a group of five cyclists over the line, 41 seconds behind Yates, who is enjoying a superb race for the Australian team.
Yates extended his lead over defending champion Dumoulin to 2min 11 sec. Domenico Pozzovivo (Bahrain-Merida) remained third, 2min 28sec behind.
The Mitchelton-Scott rider's break was designed to put more time into his lead over Dumoulin ahead of Tuesday's individual time trial, which world champion Dumoulin is favourite to win.
"It was a bit of instinct," Yates said. "When we came off the descent I saw there was a little gap to a few guys so I asked Jack (Haig) to really push the pace. Then George Bennett (LottoNL-Jumbo) attacked so it was basically really hard from the very bottom, but I still felt good so I chose my moment to go.
"They responded the first time so I gave it everything the second time to get away and finally managed to get away.
"I am super happy, I am a bit emotional after today, I really gave it everything.
"I have a good gap, but he (Dumoulin) could take two minutes out of me in the time trial in one stage. I have been fighting since Israel to have a good gap, I have a good gap but it could vanish in 35kilometres so we will see."
Dumoulin angry at rivals
After the stage, the Dutchman let rip on his fellow rivals' refusal to help him peg back Yates.
“I don’t give a damn at this point," he told Velonews. "I’m totally f*ked now. I had to dig so deep to stay with those other riders after Yates’ attack.
"And in the end it didn’t even matter, cause everybody there was just taking the piss. If I immediately started riding by myself, I would have lost a lot less time on Yates. Because of them taking the piss I lose a lot more.”
“Pinot worked a little bit with me. Pozzovivo did some short ‘coward-pulls’. Aah, I can understand them obviously. That is cycling. That’s what makes the sport so beautiful. But I had to adjust my tactics,” Dumoulin said.
“I thought, when I just time trial alone, then I’ll be faster at the finish than if I stay here, fooling around with those other guys."
After claiming the stage on top of Gran Sasso d'Italia last week, Yates said he would continue to attack because he needed minutes – not seconds – to stop Dumoulin taking the pink jersey in the time trial.
He goes into Tuesday's 34.2 kilometre individual time trial from Trento to Rovereto with a two minute and 11 second advantage over last year's champion.