Dunlop, fastest in qualifying on the GSX-R750 machine, lived up to his billing as the pre-race favourite.
The race began at 6:40pm after the original start time of 2:15pm was pushed back to allow conditions around the Mountain Course to improve after overnight rain.
Dunlop trailed Dean Harrison on the first lap by 2.5s at Ballaugh Bridge and reduced the deficit to 1.9s by the time they reached Ramsey.
The leading duo were only separated by half-a-second at the end of the first lap, with Harrison lapping at 124.767mph on the Key Racing Ducati 916 and Dunlop clocking 124.709mph as they slowed for their compulsory pit-stop.
Australian David Johnson was holding third on the Alasdair Cowan Racing Kawasaki ZXR750, just under ten seconds down on Harrison and Dunlop.
On the second lap, 25-time Isle of Man TT winner Dunlop began to up the ante and moved into the lead by a tenth of a second when he reached Glen Helen.
His advantage had increased to 6.6s at Ramsey and Dunlop extended his lead further to 11.7s at Ballaugh before news came through that Harrison had been ruled out with a blown engine on the Ducati.
Dunlop now had a commanding cushion of almost 34 seconds over Johnson, with 2022 winner Rob Hodson (Greenall Racing Kawasaki) three seconds further behind in third.
With the race at his mercy, Dunlop set a new Manx Grand Prix lap record for the Classic Superbike race of 126.681mph on the third and final lap, pulling further clear of Johnson to win by 43.692s after 113.19 miles of racing. It was the 34-year-old’s fourth win in the MGP headline race.
Hodson sealed the final rostrum place in third and was only 2.1 seconds behind Johnson.
Waterford’s Brian McCormack (Greenall Racing Kawasaki) was fourth, 27 seconds adrift of Hodson, while Manxman Nathan Harrison (Ashcourt Racing Honda RC45) and Craig Neve (Alasdair Cowan Racing Kawasaki) were the top six.
Paul Jordan from Magherafelt finished seventh on the Mistral Kawasaki ahead of Derek Sheils (Greenall Racing Kawasaki).
Banbridge’s Shaun Anderson Banbridge brought the Wiz Racing rotary Norton home for a solid finish in ninth.
Earlier, Manx rider Joe Yeardsley, a newcomer to the event, won the shortened three-lap Mylchreests Senior MGP race and established a new lap record of 122.051mph on his Spin Arena 600 Yamaha.
Yeardsley, from Port Erin, beat fellow Manxman Marcus Simpson (JPS Racing powered by Atherstone Yamaha) by 9.5 seconds, the first time newcomers have finished first and second in the Senior race since 2012.
Yeardsley also emulated his father Buddy’s victory in the 1985 race.
England’s Daniel Ingham (Russell Brook/Brook Built Yamaha R6) completed the podium in third, 36 seconds further behind.