Hutchinson set the fastest speed of the week in the Superstocks at 132.80mph, a time of 17 minutes and two seconds for the 37.73-mile Mountain Course.
Dunlop also broke John McGuinness's record of 132.70 when he lapped at 132.75 on his Hawk BMW Superbike.
The pair will start as favourites in Saturday's opening Superbike race.
The breathtaking speeds set in a week of perfect conditions for practice indicate that the first-ever sub 17-minute lap for the circuit could be on the cards.
Dunlop, also riding a BMW, was marginally behind Hutchinson in the Superstocks on 131.88 - that from a standing start.
Yorkshireman Dean Harrison became the fastest Supersport rider of the week when he lapped at 126.25 on his Kawasaki on Friday night.
That speed eclipsed Lee Johnston's previous best for the class of 124.84, set on Thursday evening.
Overall practice leaderboard
Superbikes - 1. Michael Dunlop 132.75mph; 2. Ian Hutchinson 131.66; 3. John McGuinness 131.12; 4. Dean Harrison 130.00; 5. Conor Cummins 129.99; 6. Michael Rutter 129.61
Superstocks - 1. Ian Hutchinson 132.80; 2. Michael Dunlop 131.88; 3. Michael Rutter 129.20; 4. Dean Harrison 128.95; 5. Lee Johnston 128.61; 6. James Hillier 128.13
Supersports - 1. Dean Harrison 126.25; 2. Lee Johnston 124.84; 3. Bruce Anstey 124.508; 4. Conor Cummins 124.35; 5. Ian Hutchinson 124.22; 6. Michael Dunlop 124.053
Ian Hutchinson and Michael Dunlop both unofficially shattered the absolute lap record for the Isle of Man TT course in Friday night's final practice session.