Red Bull Racing s Dutch driver Max Verstappen competes during the qualifying round of the 2023 Formula One Australian Grand Prix at the Albert Park Circuit in Melbourne on April 1, 2023. ِ ؛
In overcast and cool conditions, Lewis Hamilton in the other Mercedes was third ahead of Aston Martin's Fernando Alonso in a tight session that went to the wire.
Last year's winner Charles Leclerc came seventh in the Ferrari, with his teammate Carlos Sainz fifth.
It was a huge performance from Mercedes, whose W14 has struggled for speed but is clearly improving as they again bettered Ferrari.
Lance Stroll in the other Aston Martin will start sixth ahead of Leclerc with Williams' Alexander Albon a shock eighth.
Alpine's Pierre Gasly was ninth with Nico Hulkenberg in a Haas rounding out the top 10.
It was a second pole of the year for Dutchman Verstappen, and the 22nd of his career, after the season-opening race in Bahrain, which he went on to win.
He started from 15th in Saudi Arabia a fortnight ago after mechanical problems, but sliced through the field to come second behind Perez.
The 25-year-old knocked out his rivals with a flying lap at the death of one minute 16.732, which was 0.236 secs ahead of Britain's Russell.
"I think the last run was very good, the whole weekend has been tough to get the tyres in the right window," said Verstappen, who has never won in Australia and will start on pole for the first time at Albert Park.
"Very happy to be on pole, already looking forward to tomorrow. I think we have a good race car but it is tricky on the tyres, so going to be an interesting race for sure."
But Mexico's Perez -- one point behind Verstappen in the championship standings -- had a horror of a day, struggling with grip and balance.
He left the track four times during the third practice and it didn't get any better in qualifying when he locked up and careened into the gravel at Turn 3 on his first lap.
His car beached and had to be removed by a crane, with the session red flagged.
"It's really hard to digest this one," a dejected Perez, who blamed a technical issue, told reporters.
"To end qualifying on the second braking zone is really disappointing. But nothing I can do now. I have to look forward."
- 'A dream' -
Russell, who came fourth in Saudi Arabia, was stunned with Mercedes' performance, saying "we weren't expecting that, that's for sure".
"What a session for us. The car felt alive, and to be honest I'm disappointed I didn't get pole as the car felt awesome," he added.
"We are learning more and more about the car, it's still not where we want it to be, but it's evolved from Bahrain to Jeddah to here."
Seven-time world champion Hamilton, who has been the pole-sitter eight times in Melbourne, was briefly at the top of the timesheets and was ecstatic to be starting on the second row.
"I'm so happy with this. This is totally unexpected -- just really proud of the team," said the Briton.
"It's a dream for us, to be this close to the Red Bull is incredible. We hope to give them a run for their money.
"Everything came together today. We'll give it our best shot tomorrow."
Verstappen topped Q2 from Alonso and Sainz with Alpine's Gasly a casualty.
AlphaTauri pair Nyck De Vries and Yuki Tsunoda also missed out, along with Kevin Magnussen in his Haas and McLaren's Lando Norris.
Verstappen was also fastest in Q1 ahead of Russell and Hamilton.
Along with Perez, Alfa Romeo's Zhou Guanyu and Valtteri Bottas, Williams' Logan Sargeant and rookie McLaren driver Oscar Piastri all failed to get out of Q1.
(For more sports news and updates, follow Ahram Online Sports on Twitter at @AO_Sports and on Facebook at AhramOnlineSports.)