Yates acted with a burst in the final 1500 metres to finish two seconds ahead of defending champion Tom Dumoulin (Team Sunweb) with Davide Formolo (BORA-hansgrohe) third at the end of the 156km route from Assisi to Osimo near the Adriatic coast.
Yates extended his lead to 47 seconds over Dumoulin and 1min 4sec over Thibaut Pinot (Groupama-FDJ).
"I only just won," Yates said. He (Dumoulin) was chasing me all the way in the final there, it was an extremely difficult final. I am super happy and I would like to have a few easy days now before we get to the mountains.
"There was a plan from the beginning. The overall plan from the start in the bus was that we wouldn't chase through the stage because usually there are guys faster than me in a finish like that.
"We just let it happen and if it came back then I would obviously go for it. We would try to get to the right-hander at the front and then I would do what I could from there and that actually worked out perfectly.
"As for Tom behind me, I didn't actually know until we crested the climb a little bit towards the top because I was just going full gas and I don't like to look behind, if I did I wasn't paying attention to who it was.
"I need more time on these sort of stages and because they are quite explosive I can gain a second or two. Tom is a bit more of a steady climber, he is super hard to drop but these are the stages where I can gain some time. It might be a bit harder once we get to the long climbs so I am happy I could do at least a little bit today."
Meanwhile, Chris Froome (Team Sky) dropped out of the top 10 overall as he lost another 40 seconds on the Maglia Rosa.
The four-time Tour de France winner now trails his fellow Briton by three minutes and 20 seconds as his hopes of winning the race continue to fade.
"I certainly haven't given up hope," insisted Froome. "I'm going to keep plugging away, I'm motivated, the team's motivated and we're going to do as much as we can."
The stage crossed through the hometown of Italian cyclist Michele Scarponi who was killed in a road accident a year ago.
Three breakaway riders Alessandro De Marchi (BMC), Luis Leon Sanchez (Astana) and Fausto Masnada (Androni-Sidermec-Bottecchia) were caught five kilometres from the line before two steep climbs to the finish.
Stage 12 begins on Thursday in Osimo and runs 214km to Imola.
Simon Yates. Source: Supplied
