The 45-year-old led throughout the four laps to win by 8.8 seconds on his Paton, with Martin Jessopp second.
Rutter was clinching his fifth TT win, the Midlands rider having previously won three TT Zero races for electric bikes and one Supersport event.
Peter Hickman secured his fourth podium of the week by finishing third.
"The bike looks great and sounds great. It never missed a beat," said Rutter, whose winning time was 7.4 seconds faster than the previous record set by Ivan Lintin 12 months ago.
"I just kept everything tucked in. I didn't want to over-rev it so I just nursed it home."
Rutter pulled out a four-second advantage over nearest rival, Italian Stefano Bonetti, by the end of the opening lap, thanks to the fastest lap of the race at 120.36mph.
The British Championship rider's lead over Jessopp at the end of lap two was 10.5 seconds, Bonetti's chances of becoming the first Italian to win a TT race since Giacomo Agostini in 1972 having ended when he retired at Creg Ny Baa.
Hickman overhauled Lintin, winner for the last two years, to occupy third spot after the third circuit and was 40.5 seconds behind Jessopp by the time they took the chequered flag.
Having never previously secured a rostrum place, Hickman has now finished second in the Superbike and Superstock classes, as well as taking third positions in the Supersport and Supertwins.
Fourteen-times North West winner Rutter took his first TT win in the Supersports back in 1998 and added TT Zero successes in consecutive years from 2011 to 2013.
Rutter also won a Supertwins race at last month's North West 200 on board Ryan Farquhar's KMR Kawasaki.
Dan Cooper and former British Superbike champion Josh Brookes completed the top six, with Michael Dunlop in seventh.
Michael Rutter produced a commanding performance to secure a start-to-finish win in Wednesday's Lightweight Supertwins race at the Isle of Man TT.