Hamilton secured pole 24 hours earlier, but his getaway here was slow and it was not long before Vettel had passed the Brit for the lead with Bottas following suit.
Raikkonen was then all over the back of Hamilton's Mercedes gearbox, and the Finn locked up at the right-handed turn three and slammed into his opponent.
The Ferrari driver had two penalty points applied to his superlicence in addition to the in-race time penalty. From there he followed the leading auto of Sebastian Vettel, unable to catch the German and remaining behind him after the first round of pit stops.
As the lights went out, Vettel made a near-perfect start to pull clear into the lead followed by Bottas. Bottas had a lead to defend, Hamilton was running third, Vettel the red meat in the Mercedes sandwich. "I was a bit concerned going into the race but I was fine, probably a bit of adrenaline", said the German, who had struggled with a neck strain on Saturday. "I'm great to have been able to get back to second and minimise the loss", Hamilton said.
Although Hamilton dropped to 18th, he put in a storming drive to finish the grand prix in second place.
'The Safety Car spiced it up, it was a nice battle with Valtteri!
Vettel also triumphed in Canada, a race Hamilton had won for the previous three years and six times in total, while Mercedes' hopes of a fifth successive Austrian Grand Prix win ended with mechanical failures to both cars. Funnily enough you start blaming us for doing it on goal but I locked the wheel, unfortunately we touched and we both paid the price for it and that's how it goes sometimes.
Just two races on from Valtteri Bottas being taken out in France by Sebastian Vettel at the first corner, Raikkonen made a mistake at Silverstone and clouted Hamilton at Village - earning a 10-second penalty.
"I'm quite cool during the race", said Arrivabene. "I will not give up, believe me, I will not give up".
"I think my car's broken", Hamilton said on the team radio. "Nevertheless we knew it was going to be very hard in the end".