Dunlop, 27, riding a Buildbase BMW, was almost seven seconds faster than fellow 11-times TT winner Ian Hutchinson.
Yorkshireman Hutchinson, 36, put in a stunning lap of 130.745 to lead the Superstock session.
Lee Johnston was the fastest Supersport rider on Wednesday but is only sixth overall in the class.
Northern Irishman Dunlop moved to the top of the Superbike charts on his third lap of the night which left him ahead of Tuesday's pacesetter Hutchinson, who marginally improved his best time of the week with a 130.691mph clocking.
John McGuinness produced his fastest lap of the week at 130.487 on his Honda to complete the top three in the Superbike class.
Manxman Conor Cummins slotted into fourth with an impressive 129.764 in almost perfect conditions.
Michael Rutter remains second in the Superstock class with an improved speed of 129.204 on Wednesday, with Dean Harrison third in the overall leaderboard for the week on 128.044.
New Zealander Bruce Anstey remains quickest in the Supersport class on the Padgett's Honda with the 124.508 lap he set on Tuesday evening.
Practice continues on Thursday evening, with the first race, the Superbikes, scheduled for Saturday at 11:00 BST.
Michael Dunlop produced a blistering lap of 131.574mph on Wednesday to move to the top of the Superbike practice leaderboard at the Isle of Man TT.