The Yorkshireman took advantage of the perfect conditions on Tuesday to post a speed of 130.626 on his Tyco BMW.
John McGuinness, a 23-time winner, was second at 129.618 on his Honda.
Hutchinson, 36, heads the Superstock times to date with a lap of 128.723 on Tuesday, while Bruce Anstey is best of the Supersports with 124.508.
New Zealander Anstey's speed was marginally faster than the previous benchmark of 124.46 set by Bradford's Dean Harrison in Monday night's session.
Hutchinson (124.156) and Dunlop (124.053) lie third and fourth respectively in the overall Supersport leaderboard for the week.
Lincolnshire's Ivan Lintin tops the Lightweight class for Supertwins with 118.00 as he bids to repeat his success in that event last year.
In addition to Hutchinson and McGuinness, Michael Dunlop, Peter Hickman, Conor Cummins and Dean Harrison have now all posted speeds in excess of 129mph in the Superbike class.
Kiwi Anstey fell just short of that on Tuesday evening with a lap of 128.976 on his Padgett's prepared MotoGP-based Honda RC213V-S.
BMW-mounted Michael Rutter is second quickest in the Superstock class after recording 128.429 on Tuesday, ahead of Harrison, who set 128.044 in Monday's practice.
After setting the quickest time on Monday evening, John Holden and Andy Winkle again topped the sidecar leaderboard on Tuesday, improving their speed to 113.15mph.
Father and son team Ian and Carl Bell were only marginally slower at 112.98mph.
Practicing is scheduled to continue on Wednesday evening.
Ian Hutchinson set the fastest Superbike practice speed of the week to become the first rider to lap at over 130mph at this year's Isle of Man TT.