For the fourth time in eight years, Marquez and Pacquiao produced a gripping physical encounter and traded a knockdown apiece before the Mexican caught his Filipino foil flush with a crunching right in the final second of the sixth stanza.
With Pacquiao momentarily unconscious and no 'saved by the bell' rule, referee Kenny Bayless ended the bout.
Marquez's 40th career knockout brought him redemption, having seen his first three bouts with 'Pac-Man' end in a draw and two contentious decision defeats.
But Pacquiao now finds himself at a career crossroads with two straight defeats to his name following June's controversial points loss to Timothy Bradley.
After an even opening round of feeling out between the two old foes, it was Pacquiao who settled into the contest the quickest, controlling the second on the back hand.
Just when it looked as though he would continue to mount dominance over Marquez in round three, however, he was dropped to the canvas by a cracking counter-right.
Marquez, boosted after finally putting Pacquiao to the canvas in their feud, continued to land the cleaner strikes from there and took the fourth as well as the 10-8 third.
But Pacquiao rallied with a stiff left in round five which put a glove of Marquez's to the floor for the registered knockdown, despite the Mexican being ready to continue almost immediately.
As a pulsating exchange between the two ended round five, the swings in momentum brought the 16,348 sellout crowd at the MGM Grand Gardens Arena to an all-new decibel level.
But just when it looked as if Pacquiao had things back under control in a relatively quiet round six, he went in for another late flurry and walked straight into the fight-ending short right.
Going straight down, face-first to the canvas, Pacquiao was put out of commission just before the round could be called.
The Filipino was up on all three official judges' scorecards by 47-46 after the first five rounds, while the unofficial Eurosport-Yahoo! scorecard had the two tied at 47-47 with Pacquiao about to edge the sixth before the knockout.
And the toll would prove heavy on both men: Pacquiao missed the post-fight press conference to take a precautionary CAT scan, while Marquez left the ring with a broken nose and a suspected concussion.
Marquez said after the win: "I'm very happy with the result. After four and a half months of preparation it has come to this.
"After I saw he was going to throw the one-two, I stepped to the side and managed to catch him flush.
"I knew I had to be patient after I knocked him down the first time in round three as I knew he could easily knock me down, and he did.
"He hit me with a good punch to knock me down in the fifth and he was very quick, but I knew I had what it takes to win the fight.
"I'm going to rest, enjoy some time with my family and then I will see what is next. I dedicate the win to my family and to the new Mexican president."
Clearly still shaken from the decisive blow, Pacquiao nonetheless offered a few words for the post-fight media coverage and said: "I got over-confident. He caught me with a very good shot. That's boxing: sometimes you will get hit like that.
"I never expected that punch from him. I am going to rest for a few months but then I will return to training and come back to fight. And I would fight him again, no problem."
Pacquiao's promoter Bob Arum feels the quality of the fight and the fact that the Filipino was leading on the scorecards show that a fifth contest between the two would be a great idea.
He said: "Why not? People love this action. Have you seen people this excited in years?
"Sugar Ray Robinson and Jake LaMotta fought six times, maybe we will break the record."
Marquez moved his record to 55-6-1 while Pacquiao's now reads 54-5-2.
Elsewhere on the undercard Miguel Vazquez handed Mercito Gesta the first defeat of his professional career as he retained his IBF lightweight title via a strong points win, while Yuriorkis Gamboa won the interim WBA super featherweight title with a unanimous decision victory over Michael Farenas.
Irish featherweight Patrick Hyland suffered his first professional defeat when as Javier Fortuna won their WBA featherweight interim title fight via decision.
Hyland's record now reads 27-1 after setting an Irish record for an unbeaten pro run.
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