Movistar's Ecuadorian climber edged ahead of Primoz Roglic in the standings after breaking from the chief contenders on the Giro's toughest hill yet, and after the win a confident Carapaz, 25, threw down the gauntlet to his principal rivals.
"I was thinking just now, it seems only yesterday that I was at home in Ecuador playing on a toy bike. Now I'm here wearing the Maglia Rosa," said an elated Carapaz.
"We'll try and keep the jersey and defend it all the way to Verona."
Britain's Simon Yates was second after attacking on the last kilometre, gaining some redemption for earlier disappointments and climbing to ninth overall, 5min 28sec off the lead.
The road ahead became a little less intimidating on Sunday evening when organisers announced they were eliminating the famous 2,618m-high Gavia pass from Tuesday's 'queen stage'.
Snow has been falling heavily in recent weeks. Mauro Vegni, the race director, said deteriorating weather conditions, the risk of avalanches and icy descents meant the "only solution" was to reroute the 16th stage which will be cut from 226km to 194km.
New leader Carapaz was in dreamland after winning his second stage in this year's Giro following his bunch sprint victory in stage four.
"I worked so hard for this, it's a real dream come true," said Carapaz at the winning post.
"I felt good this morning. We knew the altitude was good for me. I gave it everything because I knew the entire Giro was at stake."
He said there was no problem in Movistar where Mikel Landa who stands fifth at 2min 50sec, would normally be seen as the leader.
Landa promised Movistar would remain aggressive.
"We're going to keep attacking," Landa said. "One day it will be him (Carapaz), one day it will be me. The objective is to win the Giro."
Man-to-beat Roglic and two-time winner Vincenzo Nibali kept a close eye on each other all day with the Italian testing the Slovenian with a daredevil descent on the penultimate climb, the Colle San Carlo.
"On the last climb, it was a man-to-man fight," said Roglic. "Everyone ran at their limits."
Nibali was pleased to pick up a bonus for third.
"I took four seconds, it's a small thing," he sais. "Roglic was very solid, today he collaborated, in his own way."
It was on the San Carlo that overnight leader Jan Polanc ran out of gas and lost almost eight minutes on the day.
"We fought to the end to honour the pink jersey," said Polanc. "The Giro is not finished. We will fight again for more good results."
The win and the show of power with which it was achieved, marks out Carapaz as a contender after he came fourth in the Giro last year.
He now leads Roglic by 7sec while Nibali is third at 1min 47sec.
The Bahrain Merida sports director Brent Copeland was in upbeat mood after the race when asked about his captain Nibali's chances.
"There's a great deal to look forward to. We are going to have a role to play here and there are a number of stages which suit Vincenzo coming up," said Copeland.
Sunday's stage is one of the longest on the Giro at 232km, starting with a 160km flat section before the race swings into a series of short but challenging climbs and descents which pundits feel may suit Nibali.
Results after Saturday's 14th stage of the Giro d'Italia, 131km from Saint-Vincent to Courmayeur:
1. Richard Carapaz (ECU/Movistar), 4hr 2min 23sec, 2. Simon Yates (GBR/MIT) at 1:32, 3. Vincenzo Nibali (ITA/BAH) 1:54, 4. Rafal Majka (POL/BOR) same time, 5. Mikel Landa (ESP/MOV) s.t., 6. Miguel Angel Lopez (COL/AST) s.t., 7. Pavel Sivakov (RUS/INE) s.t., 8. Primoz Roglic (SLO/JUM) s.t, 9. Joe Dombrowski (USA/EF1) s.t., 10. Damiano Caruso (ITA/BAH) 2:01, 11. Davide Formolo (ITA/BOR) 3:49, 12. Bauke Mollema (NED/TRE) 4:04
Selected: 20. Ilnur Zakarin (RUS/KAT) 7:20, 28. Jan Polanc (SLO/UAE) 7:41
1. Richard Carapaz (ECU/Movistar) 58hr 35min 34sec, 2. Primoz Roglic (SLO/JUM) at 7sec, 3. Vincenzo Nibali (ITA/BAH) 1:47, 4. Rafal Majka (POL/BOR) 2:10, 5. Mikel Landa (ESP/MOV) 2:50, 6. Bauke Mollema (NED/TRE) 2:58, 7. Jan Polanc (SLO/UAE) 3:29, 8. Pavel Sivakov (RUS/INE) 4:55, 9. Simon Yates (GBR/MIT) 5:28, 10. Miguel Angel Lopez (COL/AST) 5:30, 11. Ilnur Zakarin (RUS/KAT) 6:04, 12. Davide Formolo (ITA/BOR) 8:21, 13. Mikel Nieve (ESP/MIT) 10:20, 14. Tanel Kangert (EST/EF1) 11:21, 15. Joe Dombrowski (USA/EF1) 12:56