But he surged back into contention and thanks to the safety auto being deployed on two occasions late on in the race surged into second place.
Vettel's win wrecked Hamilton's hopes of a record sixth overall at the storied track, but the Englishman - who was last after a collision with Raikkonen on the opening lap - produced a heroic drive to end second.
Pierre Gasly of Toro Rosso also had an apparent gearbox issue.
The other great line was Vettel grumbling: "Tell the safety auto to slow down". Both Ferrari and Red Bull drivers took advantage of the safety auto to stop for fresh tyres, but Mercedes left both of their cars out.
While Raikkonen was handed a 10-second time penalty for the incident, Hamilton immediately set about climbing back through the field as the contact had left him with minimal - if any - damage.
"It was my mistake", he said.
Ferrari's Sebastian Vettel just sprinted out for the lead when the lights went out and fought tooth and nail to keep the eye on the prize.
On another sweltering afternoon in central England, with a track temperature of 53 degrees Celsius (127 degrees Fahrenheit), the drama began immediately. 15 laps to go, and Bottas is in the lead.
Raikkonen apologised for his first-lap brush with Hamilton. He was 19th and last, Brendon Hartley having failed to start in his Toro Rosso.
The penalty saw the Finn drop from fourth to 10th place and was more good news for Hamilton, who made it into third after the Red Bulls of Max Verstappen and Daniel Ricciardo pitted.
Hamilton was on a charge from the first lap, back up to seventh after nine laps but still 26 seconds behind his fellow four-times world champion.
Then the race took another unexpected twist when Swede Marcus Ericsson crashed out at 200mph.