The Red Bull junior had a lap time deleted just minutes before the session ended, but a last ditch attempt put him top with a 1m36.290s.
He demoted teammate Roy Nissany, who took a shock second place in his best qualifying result of the season, just 0.036s behind Iwasa.
Theo Pourchaire, who sits second in the standings, had looked set to take his first pole position since Monaco, but failed to improve on his last run before the red flag ended running.
It was caused by 2022 Formula 3 runner-up Zane Maloney, making his F2 debut this weekend, losing the rear of his Trident and spinning at Turn 9.
Pourchaire will settle for third as he hopes to secure the runner-up spot in the championship this weekend at Yas Marina circuit.
Pourchaire set an early benchmark with a 1m37.145s for ART, before he was demoted by Jack Doohan (Virtuosi), almost 0.5s faster.
The first stoppage came after seven minutes, with Doohan’s teammate Marino Sato spinning at Turn 14 and prompting a red flag.
Running resumed after a five-minute delay, with 2022 champion Felipe Drugovich moving up into second place with a 1m36.903s.
He was demoted by Pourchaire before the Prema duo of Jehan Daruvala and Dennis Hauger slotted in between the Frenchman and the Brazilian, pushing him down to fifth.
Ralph Boschung was next to enter the top five, jumping up onto the front row in his Campos, before Drugovich took the top spot with a 1m36.546s.
Pourchaire then reclaimed the top spot, almost 0.2s quicker than his title rival, before Logan Sargeant took second for Carlin, having been sat in 16th.
This weekend is crucial for Sargeant’s Formula 1 hopes for 2023 as he fights to secure enough superlicence points.
The Williams junior must finish fifth in the standings to secure enough points, or sixth without picking up any penalty points.
Drugovich improved to second in the last moments of the session as Pourchaire and Sargeant failed to improve on their times, while Doohan moved up into third with a 1m36.510s.
Nissany, whose previous best in qualifying this year was sixth, then took pole briefly before Iwasa pushed him down into second as the session was ended early.
Drugovich will line up fourth for Sunday’s race, with Doohan and Sargeant in fifth and sixth.
Richard Verschoor will start Saturday’s reverse-grid sprint race on pole for Trident, with Liam Lawson in second for Carlin.
Amaury Cordeel will line up third for Van Amersfoort Racing, with Hauger joining him on the second row.
Maloney finished the session in 19th, while Juan Manuel Correa took 18th for VAR in his first F2 qualifying since 2019.
