Home favourite Nico Rosberg will start on pole for Sunday's German Grand Prix after edging out his title rival Lewis Hamilton.
Rosberg, six points behind Hamilton in the championship, had been fastest in all three practice sessions at Hockenheim, and he made it count where it matters to secure his second pole in as many grands prix.
Daniel Ricciardo qualified third for Red Bull while his team-mate Max Verstappen will start from fourth.
Nico Rosberg has extended his stay with Mercedes after signing a new two-year contract.
The deal will see the 31-year-old German, who currently leads the championship, partner Lewis Hamilton until the end of 2018.
Rosberg holds a one-point lead over Hamilton heading into Sunday's Hungarian Grand Prix.
Lewis Hamilton and Nico Rosberg will be free to race for the remainder of the Formula One season, Mercedes have said in a statement.
Hamilton and Rosberg, who crashed on the final lap of the Austrian Grand Prix, were hauled in front of Mercedes bosses Toto Wolff and Paddy Lowe at the team's Brackley headquarters for crisis talks on Thursday.
A furious Wolff had threatened to impose team orders following their third collision in five races, but Rosberg and Hamilton, who the German leads by 11 points heading into Sunday's British Grand Prix, are now set to continue their battle on the track.
Mercedes did stress, however, that team orders could still be used as a "last resort".
Lewis Hamilton won the Austrian Grand Prix after a dramatic last-lap collision with championship rival Nico Rosberg.Read the full story ›
Rosberg appeared on course to claim his sixth victory of the season, but crashed into Hamilton as the Briton attempted to pass himRead the full story ›
Lewis Hamilton and Nico Rosberg are out of the Spanish Grand Prix after they collided on the opening lap.
Hamilton, starting from pole position, lost the lead to Rosberg and in attempting to pass his Mercedes team-mate he ran on to the grass at turn three.
The world champion then lost control of his car, spun, and crashed into Rosberg. Both drivers ended up in the gravel trap at turn four with Hamilton holding his head in his hands.
Lewis Hamilton's troubled defence to his Formula One title took another twist on Saturday after an engine failure prevented him from battling for pole position for Sunday's Russian Grand Prix.
Hamilton, already under investigation from the stewards for failing to negotiate a block placed in the run-off area at turn two, is set to start only 10th.
And to make matters worse for the triple world champion, Nico Rosberg, whom he trails by 36 points in the race for the title, claimed pole to leave him as the overwhelming favourite to seal his fourth victory from as many grands prix this season.
Ferrari's Sebastian Vettel qualified second, but his five-placed grid penalty promotes the Williams of Valtteri Bottas on to the front row with Kimi Raikkonen (Ferrari) third.
Nico Rosberg celebrated winning the China Grand Prix and moving 36 points clear of Lewis Hamilton with a Burger King as Red Bull team principal Christian Horner predicted Formula One's championship leader would soon have cause to celebrate a new Mercedes contract, too.
Rosberg's brilliant start to the season reached new heights on Sunday after he extended his unbeaten streak to three races in 2016, and six in as many grands prix stretching back to last year.
The German posted a video to his social media accounts in which he toasted his third victory at the fast-food restaurant ahead of his flight to Berlin for Monday night's Laureus Sports Awards where he will be joined by Hamilton and Mercedes bosses' Toto Wolff and Niki Lauda.
Rosberg is out of contract at the end of the year, but Horner does not envisage the 30-year-old leaving the sport's all-conquering team.
"I think Nico is doing a great job and I can't see him at any other team than Mercedes next year," Horner told Press Association Sport.
Formula One drivers may be among the best paid sportsmen in the world, but that did not stop them from splitting the bill 18 ways following their dinner in Shanghai on Wednesday night.
Lewis Hamilton, who last year signed a £100million three-year contract with Mercedes, said he picked the restaurant - an Italian called The Kitchen - and laid down the deposit for a meal which all but four of the grid attended.
But when it came to who picked up the bill, he claimed his offer to pay was shot down by his Mercedes team-mate Nico Rosberg.
"It was a little bit silly really, ridiculous because someone said, 'Let's share the bill', so 18 drivers shared a bill which is just insane," Hamilton said with a smile.
"It probably wasn't really that expensive. I did say 'why don't I just get it now, or two of us get it now, and then the next time someone else gets it'.
"And they are like 'no, no, no. I want to pay individually'.
"We all got a receipt, 18 receipts, 18 credit cards, it was the most ridiculous thing I have ever seen. I have never seen anything like that before."
Asked who made that suggestion, Hamilton replied: "I am pretty sure it was Nico."
When Hamilton's version of events was then put to his Mercedes team-mate, Rosberg said. "Really? Interesting. From what I can remember, the hidden agreement usually is that the world champion pays, but that might just be my opinion."
Nico Rosberg claimed his second win of the new Formula One season after capitalising on a first-corner collision involving Lewis Hamilton.
Rosberg, winner of the season opener in Australia a fortnight ago, got the better of a slow-starting Hamilton to snatch the lead and from there he never looked back.
Hamilton dropped to ninth after his coming-together with Williams' Valtteri Bottas, but recovered to finish third with Ferrari's Kimi Raikkonen splitting the Mercedes pair.