Latvala took four stages on his way to a 12.1sec lead, with Sebastien Loab back in third.
The gravel roads in the mid-Wales forests were muddy and slippery after overnight rain. It was a surprise to drivers, who had expected drier than normal conditions for a rally that is traditionally held in wintry weather in November.
“It was a tough day but I couldn't be happier than I am tonight,” said Latvala.
“The roads were wet and muddy but slippery roads suit me. The team has worked hard since the last gravel rally to improve the balance of the suspension at the rear of the car and our efforts paid off today.
“We can't relax yet because our rivals will attack. Tomorrow's stages were drier on the recce so unless it rains tonight, conditions should be better, and with a lower start order that will help.”
Latvala had a lucky escape in the second stage when he ran wide and clipped a tree stump. Some wood became lodged between the front left wheel and the tyre, forcing the rubber partly off the rim. However, the tyre's strength kept it inflated and he lost just a couple of seconds.
Seven Fiesta RS WRCs packed the top 10 leaderboard after the longest day's competition in this 10th round of the FIA World Rally Championship.
Sitting just outside the top-10 in 11th is Australia's Chris Atkinson in a WRC Mini.
“We picked up a brake problem at the end of the morning loop and our Mini's brake pads started to overheat and it meant we had to slow down a little bit in the afternoon to avoid further damage.
“We kind of had to survive through the afternoon stages but overall I'm quite happy with the car.”
Another Australian in the rally is Molly Taylor who sits second in her class in a front-wheel drive Citroen DS3 R3.
“We are happy with our pace, especially in the morning stages,” said Taylor.
“Some changes we made at the lunchtime service didn't work for us this afternoon. We are looking forward to a consistent day tomorrow and getting back to the pace we had to start off with.
“It should be dryer and faster, so I'm looking forward to that.
Kiwi Hayden Paddon was forced out of the opening leg with electrical and gearbox issues in his S2000 Skoda Fabia. They will take time penalties and re-start on the second leg.
“At least we can re-join the rally and we will be back tomorrow with just one target – to try and beat Sébastien Ogier on some stages,” said Padden.
“If we can do that, then not all is completely lost for the weekend and with the championship leader (P-G Andersson) also rejoining tomorrow, we may not lose many, if any, points to the championship lead.”
The second leg features seven stages and 95.36km of competition.
POSITIONS: Leg 1 Wales Rally GB