Loeb, bidding for a record fifth win in the event was ahead of Finn Mikko Hirvonen.
The time penalty also affected Finland's Mikko Hirvonen who finished in third but was demoted to fifth.
BBC: SPORT | Motorsport | Rallying | Loeb into lead as Gronholm slips
He is two minutes and 17 seconds clear of closest challenger Mikko Hirvonen, with Daniel Sordo lying third.
BBC: Marcus Gronholm had won four of the six stages on day one
Ford's Mikko Hirvonen took second ahead of Spain's Dani Sordo, who consolidated his third place in the title race.
BBC: SPORT | Motorsport | Rallying | Loeb makes it five wins in a row
Belgian Francois Duval was second and Spain's Xavier Pons fourth, while Finn Mikko Hirvonen, in a Ford, was third.
Ford's Mikko Hirvonen is in fourth with Skoda's Francois Duval just behind.
BBC: SPORT | Motorsport | Rallying | Loeb frustrated as Gronholm stars
The Frenchman now has 37 career titles, also a record, after heading off Finnish rival Mikko Hirvonen by 2 minutes 34 seconds.
Fellow Finn Mikko Hirvonen leads by 25.8 seconds from Petter Solberg.
The top eight are well spread out though, with Ford's Francois Duval in fifth, Harri Rovanpera for Peugeot and Subaru's Mikko Hirvonen seventh.
Gronholm's Finnish compatriot and team-mate Mikko Hirvonen is fourth with Jan Kopecky in fifth, 2.7 seconds ahead of Citroen's Toni Gardemeister (Citroen) in fifth.
BBC: SPORT | Motorsport | Rallying | Loeb in command in Germany Rally
Latvala came home 29.4 seconds clear of team-mate Mikko Hirvonen as BP Ford claimed a morale-boosting one-two to finally break Citroen's stranglehold on the 2009 season.
The Frenchman dominated the second day to take a 20-point lead in the standings, although he was fortunate that main rival Mikko Hirvonen retired with an engine problem.
The Citroen driver's success, the 51st of his career, sees him open up a 10-point lead over Ford's Mikko Hirvonen at the top of the drivers' standings and it is becoming difficult to see how any of his rivals can stop him marching to a sixth successive world title.
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