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The German was 0.833 seconds clear of Sauber's Felipe Nasr. Lewis Hamilton was fourth despite a reliability issue.
The Mercedes driver missed the final three hours of running because of a water leak caused by a failed part.
Meanwhile, Jenson Button managed only six laps in the McLaren as problems continued to plague the team.
That was only 10% of the target set by racing director Eric Boullier on Sunday after Fernando Alonso completed six laps on day one.
Like Alonso, Button failed to set a time as the McLaren was stranded in the pits with what the team said were "ancillary problems".
McLaren were "quite positive" they had fixed the problem and hoped to run the car again before the end of the day.
Button did head back out with fewer than 20 minutes of the session remaining but completed only one slow lap on a track soaked by a heavy shower of rain before returning to the pits.
With two unsuccessful days with a modified 2014 car in Abu Dhabi in November, McLaren have managed just 17 laps over four days of testing with the new Honda engine, none of them close to racing speed.
It is an inauspicious start to the renewed relationship between McLaren and Honda, which is returning to the sport for the first time in six years.
The two hope eventually to repeat the domination they enjoyed in their previous partnership from 1988-92.
Button said: "It has not been the easiest start to the season but it is a very complicated power unit. We understand the issue and we have our heads around it - that's what the last run in the wet was about - so we are hoping for a much more productive day three and day four."
Vettel's pace-setting time, set in a flurry of quick laps early in the day, will be an encouraging start to his Ferrari career, but headline laps in testing are a notoriously unreliable gauge of true pace, as it is impossible to know the specification the cars are running in.
The four-time world champion is scheduled to hand over the car to team-mate Kimi Raikkonen for the final two days of the test.
Despite his reliability issue, world champion Hamilton still managed nearly 100 laps, comfortably the most mileage of any team, to add to the 157 achieved by Nico Rosberg on Sunday.
"It was a good day," said Hamilton. "Testing is not the exciting part for any racing driver, but it is where you lay the foundations.
"We are working to understand the car. We can't get too excited just yet because we don't know where everyone stands.
"The car feels very much the same, with more downforce. We've made a step but how big is difficult to say."
Red Bull team principal Christian Horner said: "It's just showing off really - to turn up and do 157 laps is taking the mickey.
"They had a good car last year and have evolved it. They are the benchmark, no doubt about it. We have made good progress and hopefully we can get closer to them."
Red Bull's day was ruined when new driver Daniil Kvyat ran off track early on and damaged the car's front-wing mounting pillars.
The team did not have a spare so the Russian was restricted to doing system-check laps without a front wing for the rest of the day.
With Valtteri Botta third-fastest in his Williams, the team's chief technical officer Pat Symonds was optimistic they had made progress from 2014, when they leapt from ninth to third in the constructors' championship.
"Valtteri's comments were very positive," said Symonds. "Initial comments do count for quite a lot and I was very encouraged by what Valtteri said."
The Lotus car ran for the first time after missing the first day of the test, with Venezuelan Pastor Maldonado setting the sixth-fastest time overall.
1 Sebastian Vettel (Ger) Ferrari 1:20.984
2 Felipe Nasr (Brz) Sauber-Ferrari 1:21.867
3 Valtteri Bottas (Fin) Williams-Mercedes 1:22.319
4 Lewis Hamilton (GB) Mercedes 1:22.490
5 Max Verstappen (Ned) Toro Rosso-Renault 1:24.167
6 Pastor Maldonado (Ven) Lotus-Mercedes 1:25.802
7 Jenson Button (GB) McLaren-Honda 1:54.655
8 Daniil Kvyat (Rus) Red Bull-Renault No time
Ferrari's Sebastian Vettel set the pace for the second day in succession at the first pre-season test in Jerez as McLaren-Honda continued to struggle.