The performance put former champions Williams, who have been uncompetitive for years and this month scored their first points in Formula One since 2019, on the front row for the first time since 2017.
Russell was even heading for an astonishing pole until Red Bull's Max Verstappen pipped him at the end.
The Briton was 0.013 seconds quicker than seven-time world champion Hamilton with Valtteri Bottas, whose place the Briton could take next season, qualifying only eighth before a five-place grid penalty.
Russell's team boss Jost Capito was quick to see the significance.
"We would love to keep him of course but this result today, if [Mercedes boss] Toto hasn't got the decision done yet I think this puts him even more to Mercedes," he said.
"He's just a talent. He deserves to be in the car that is capable of winning the championship and we fully support him in that," he told Sky Sports.
Wolff said Mercedes already knew full well what Russell could do.
"I think by now we know where we stand and we know what we have, what he can do," the Austrian said, who promised an announcement soon. "Today is another confirmation."
Russell, who is managed by Mercedes, stood in for Hamilton in Bahrain at the end of last year when he also qualified second. He felt the hard work was paying off.
"I don't know what to say. I thought I would have been doing a good job to get out of Q1 [the first phase] how we got on yesterday," he said. "The car was feeling great, I had so much confidence."
Williams called the shots right tactically, Russell and team mate Nicholas Latifi going bold on intermediates in the first phase and then Russell putting everything on one lap in the final crash-hit phase.
"We had nothing to lose, we were in Q3, which is not the norm for us, and we just had to go for it. We saved the full maximum engine mode for the last lap and decided to just go for it," he said.