Inter, reduced to 10 men early in the second half following Cristian Chivu's dismissal, would have gone top with a win as they bid for a sixth straight Serie A title but instead now trail their rivals by five points with just seven games left.
Inter coach Leonardo bossed Milan to third spot last term but his attacking tactics in his first game against his ex-side were ruthlessly exposed by Massimiliano Allegri's men, despite the suspension of former Inter striker Zlatan Ibrahimovic.
Brazil forward Pato struck the opener after just 44 seconds when Inter's shaky defence was ripped apart on the first of several occasions during the game and he grabbed a fortunate second on 62 minutes after Chivu had already been sent off.
Substitute Antonio Cassano earned and netted a late penalty, only to be sent off for a second booking minutes later, but little could steal the gloss from Milan's triumph after they also beat last season's treble winners 1-0 in November.
The San Siro was enlivened before kick off with the usual array of banners while Milan fans chanted against Leonardo, who left the Rossoneri last May after 13 years as a player, scout and coach only to join their arch-enemies in December.
The feverish atmosphere continued when the game began with Milan, who had been 13 points ahead of Inter before a recent wobble, immediately getting on the scoresheet.
Gennaro Gattuso passed into the box and Robinho beat the offside trap before clipping the ball away from Inter goalkeeper Julio Cesar for Pato to stroke into an almost empty net.
With centre-back Lucio suspended, Leonardo paired usual left-back Chivu with Andrea Ranocchia at centre-half but the duo, who overcame fitness tests to play, were often all at sea.
They were not helped by Leonardo's 4-2-3-1 formation which was being swamped by Milan in midfield, especially when Inter full-backs Maicon and Javier Zanetti pushed too far forward.
REPLAYS INCONCLUSIVE
Inter's system also meant in-form striker Samuel Eto'o was shunted out to the left wing and he barely had a touch before missing a superb chance just before the break at the far post.
Giampaolo Pazzini and Thiago Motta also had good opportunities in the first half for Inter while Wesley Sneijder fired over a free-kick after having lasers shone in his eyes by fans, but Milan always looked a threat on the counter attack.
Mark van Bommel rattled the bar with a deflected effort and the Rossoneri had two shouts for a penalty turned down.
Chivu continued to struggle and when Pato got beyond the defence again on 54 minutes the Romania defender ran across the back legs of the Brazilian, who tumbled to the ground.
The referee showed a straight red card to Chivu but replays were inconclusive about whether there had been contact.
Thiago Silva's resultant free kick was well-saved but Julio Cesar could do nothing when Ignazio Abate's mis-hit shot fell for Pato to head home the second goal.
