Italian Bagnaia set the fastest lap with less than half a minute left in the session with a time of 1:28.539, a whisker shy of the lap record set by VR46 Racing's Marco Bezzecchi in practice on Friday.
Bagnaia, who leads Jorge Martin in the championship by 41 points, will be joined on the front row by Aprilia's Maverick Vinales while KTM's Brad Binder will start third on the grid in their home race at the Red Bull Ring.
"It was very difficult today because KTM and Aprilia have made really great steps to get in front," Bagnaia said.
"Right now we are losing a bit but we are improving on that during the weekend but we're still missing something. But I'm happy because being on the front row is important."
Binder signed a new two-year deal with KTM through to the end of 2026 and the South African said: "I'm super happy to get on the front row, it will make my life easier in the first couple of laps."
Martin will start 12th after his best lap was cancelled when his bike exceeded track limits, leaving the Spanish Pramac Racing rider fuming when he returned to the pit lane.
The second row will see Binder's teammate Australian Jack Miller, who was fastest in Q1, start fourth alongside Gresini Ducati's Alex Marquez and VR46 Racing's Luca Marini.
Marini's teammate and fellow Italian Bezzecchi could only manage seventh-fastest despite scorching the lap record on Friday in 1:28.533.
Honda's Marc Marquez, who has yet to finish a race this season, struggled in Q1 and will start 18th on the grid.