Yates picked up three more seconds on defending champion Tom Dumoulin by taking bonuses from the intermediate sprint, but saw Mitchelton-Scott team-mate Esteban Chaves lose second place overall and drop out of the top 10 in a blow for his team.
Yates now leads by 41 seconds from Dutchman Dumoulin, with Thibaut Pinot of Groupama-FDJ in third at 46 seconds.
“It was the most aggressive stage I’ve seen for a while,” said Yates. “This usually happens in short stages only.
“But this was a long and ferocious race. The high speed never stopped. I first thought Esteban Chaves would be able to come back but it was a really crazy stage and I’m very disappointed for him as I know he’s worked very hard for this.
“I’d prefer him still to be there, so we had more cards to play and tactics in the final. I’m not scared of the third week; I’m scared of the time trial. I know I’ll lose some time there.”
Chaves’ woes are a major blow to the overall hopes of his Mitchelton-Scott team.
Going into Tuesday’s stage they were in the enviable position of occupying the top two positions in the overall standings, meaning tactically they would be able to play two cards in the pink jersey race and increase the pressure on their rivals.
But once Chaves was distanced, the teams of overall hopefuls including four-time Tour de France winner Chris Froome, reigning champion Dumoulin, local favourite Fabio Aru and French hope Pinot, pushed the pace in the peloton to ensure the Colombian never regained contact.
Briton Froome, who crashed twice during the first week, is up to 10th at 2:30.
What was expected to be a quiet transition stage – over the longest distance of the entire giro at 244km – turned into a frantic day of racing after Chaves was dropped on the category two climb which opened the day’s racing.
The fast pace set by the peloton meant that an initial 17-man breakaway was swallowed up with still 150km to ride.
A series of attacks began late in the day with stage honours on the line, and as the tension increased Dumoulin was caught in a small crash, with the Team Sunweb man needing a bike change before chasing back on.
Solo attempts by German Tony Martin and Italian Marco Frapporti proved futile until finally a late escape by Slovene Mohoric and German Denz stuck.
As the attacks petered out, Slovenian Mohoric stayed clear alongside AG2R La Mondiale’s Denz and had enough to hold off the German at the line, winning some 34 seconds ahead of the main bunch, led by Irish sprinter Sam Bennett of Bora-Hansgrohe.
Their sprint to the line was fiercely contested but Bahrain Merida’s former UAE Team Emirates rider Mohoric had the strength to prevail.
“I’m delighted that I have taken this opportunity,” said former UAE Team Emirates rider Mohoric.
“I wasn’t convinced I’d win the sprint against Nico Denz. I’m not very good in a sprint from a slow speed so I launched and I increased my speed as much as I could.
“Our main goal remains to help (Domenico) Pozzovivo for the best overall ranking possible.”
Wednesday’s 11th stage will be raced on a hilly route of 156 km from the central city of Assisi across to Osimo near the Adriatic coast.
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