The German finished 2.264 seconds ahead of Hamilton for his fourth win of the season.
Sebastian Vettel took advantage of a bad start and disastrous first lap for Lewis Hamilton to win the British Grand Prix and extend his lead in the championship standings on Sunday.
Hamilton started in pole position but Vettel streaked ahead and his Ferrari teammate Kimi Raikkonen compounded Hamilton's misfortune when he bumped into the British driver, sending his Mercedes off the track and leaving him last.
Hamilton managed to fight his way back to finish second after a Ferrari-Mercedes duel developed with Valtteri Bottas leading until Vettel hit the front again with five laps to go.
The German finished 2.264 seconds ahead of Hamilton for his fourth win of the season, denying Hamilton what would have been a fifth straight win in his home race. Hamilton had been going for his sixth overall to beat the joint-record held by Jim Clark and Alain Prost.
Vettel, who led Hamilton by one point going into the 10th of 21 races, now leads by eight.
"It was a super start, a super race, and yeah, a hammer finish," said Vettel, who had been dealing with a stiff neck for qualifying the day before.
Raikkonen, who completed the podium for Ferrari, was handed a 10-second penalty for the early incident involving Hamilton, but the Finn acknowledged that he deserved it.
"That's how it goes sometimes. Not a straightforward race," Raikkonen said.
That was no comfort to Hamilton, who quickly worked his way back through the back-runners as he posted the fastest lap times.
"I'm sorry I couldn't bring it home for you today," the four-time world champion told his fans. "We take it on the chin and believe me, I will not give up. I will not give up."
Driving conditions were ideal under clear blue skies and temperatures well above the seasonal norms for Britain, though the heat made tire management tricky for the teams.
Vettel pitted for new tires while the safety car was out following Marcus Ericsson's crash. The Sauber driver spun off across the gravel into the barriers at high speed. He was able to emerge unaided.
Vettel was left stuck between the two Mercedes drivers as Bottas took the lead.
Hamilton wondered about competing against Ferrari's new tires but was told: "Lewis, you are the fastest car by miles. Don't give up, mate. It's all there."
The safety car was out again after Romain Grosjean and Carlos Sainz collided. Vettel pushed Bottas aggressively with ten laps remaining, but the Finn did enough to stay just in front. It soon developed into a Ferrari-Mercedes duel, with Raikkonen also challenging the third-placed Hamilton.
Vettel finally pounced to take the lead on lap 47. Bottas then let Hamilton past to challenge the German.
Bottas, on a medium tire, was soon struggling, and Ferrari was celebrating when Raikkonen went past to go third.
Bottas finished fourth, ahead of Daniel Ricciardo, Nico Hulkenberg and Esteban Ocon. Ricciardo's Red Bull teammate Max Verstappen was battling with Raikkonen but his race ended at lap 48.
Brendon Hartley's miserable weekend continued as his Toro Rosso was wheeled back early. The New Zealander crashed spectacularly in Saturday's final practice.
Sauber's Charles Leclerc, reportedly a candidate to replace Raikkonen at Ferrari next season, failed to finish for the first time due to a rear tire issue, and Ericsson's crash completed a race to forget for the team.
The Silverstone circuit was celebrating 70 years since the Royal Automobile Club held a Grand Prix on the former wartime airfield in 1948, when Luigi Villoresi led an Italian 1-2 for Maserati.
Two years later, Silverstone held the first F1 world championship race, again dominated by Italian cars with Giuseppe Farina winning in an Alfa Romeo.
Vettel's victory for Ferrari ensured the Italian celebrations had yet another day in the sun.
(With AP Inputs)
