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The Mercedes driver lapped the Red Bull-owned circuit with a best time of 1min 11.295 seconds to finish 0.140 sec ahead of team mate Lewis Hamilton.
Ferrari's Fernando Alonso finished third, followed by Williams' Felipe Massa.
VETTEL AVOIDS CRASH
Four-time world champion Sebastian Vettel's spectacular spin was one of the highlights of the session which had several drivers running wide.
The Red Bull driver, who finished 15th on the timesheet, spun in the final corner and narrowly avoided the barrier.
Team mate and 2014 Canadian GP winner Daniel Ricciardo came 13th in the session amid intermittent rain. Force India duo of Sergio Perez and Nico Hulkenberg were sixth and seventh fastest respectively.
F1 returns to Austria for the first time since 2003.
2014 Austrian GP at the Red Bull Ring
First practice results
1 Nico Rosberg (Germany) Mercedes 1min11.295
2 Lewis Hamilton (Britain) Mercedes 1min11.435
3 Fernando Alonso (Spain) Ferrari 1min11.606
4 Felipe Massa (Brazil) Williams 1min11.756
5 Jenson Button (Britain) McLaren 1min11.839
6 Sergio Perez (Mexico) Force India 1min12.009
7 Nico Huelkenberg (Germany) Force India 1min12.072
8 Valtteri Bottas (Finland) Williams1min12.114
9 Kevin Magnussen (Denmark) McLaren 1min12.313
10 Jean-Eric Vergne (France) Toro Rosso 1min12.364
11. Kimi Raikkonen (Finland) Ferrari 1min12.365
12 Daniil Kvyat (Russia) Toro Rosso 1min12.372
13 Daniel Ricciardo (Australia) Red Bull 1min12.570
14 Esteban Gutierrez (Mexico) Sauber -1min12.984
15 Sebastian Vettel (Germany) Red Bull 1min12.988
16 Romain Grosjean (France) Lotus 1min13.168
17 Pastor Maldonado (Venezuela) Lotus 1min13.642
18 Jules Bianchi (France) Marussia 1min13.738
19 Max Chilton (Britain) Marussia 1min13.857
20 Kamui Kobayashi (Japan) Caterham 1min14.611
21 Adrian Sutil (Germany) Sauber - Ferrari 1min14.691
22 Marcus Ericsson (Sweden) Caterham 1min17.501
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