Raikonnen's time of 1 minute, 35.707 seconds in the afternoon session was faster than last year's pole-winning time set by teammate Felipe Massa, who was second quickest Friday, an eighth of a second behind.
Red Bull's Sebastian Vettel, Williams' Nico Rosberg and Mark Webber of Red Bull followed the Ferrari pair.
Brawn drivers Jenson Button and Rubens Barrichello, who finished 1-2 in last weekend's season-opening Australian GP, were sixth and seventh on the time sheets, ahead of Williams' Kazuki Nakajima.
Raikkonen's strong showing shook off doubts about the reliability of the Ferrari after a mishap in morning practice, when smoke began billowing into the cockpit and streaming from the rear of the car. Ferrari did not disclose the problem, amid reports of an overheating KERS energy storage device.
Ferrari qualified first and second for the Malaysian GP last year after a pointless season opener in Australia, and Friday's practice raised hopes of a repeat recovery after once again leaving Melbourne empty handed.
Rain threatened the Sepang circuit in the afternoon, but both morning and afternoon sessions were dry, preventing teams trying out their wet weather settings. This heightened the chances that they will go into Sunday's race — with rain forecast — without the benefit of acquainting themselves with a wet track.
Force India's Giancarlo Fisichella was the main casualty of the second practice, spearing off the track on the dual right-handers of turns 10 and 11, sideswiping the tire wall. It ended his session, but he walked away unhurt.
Rosberg set the fastest time in the morning practice, making it four straight practice sessions in which the German had topped the time sheets after the three at Melbourne last week.
Rosberg's time of 1 minute, 36.260 seconds was just four hundredths of a second quicker than teammate Nakajima.
Reigning world champion Lewis Hamilton's horror week — after being stripped of his third place in Australia for misleading stewards in an inquiry — continued when the McLaren driver was fined €1,200 ($1,600) for breaching the pit lane speed limit during morning practice.