The capital club suvived a late comeback from the locals to seal their 11th straight success in all competitions and respond to their fierce rivals, who earlier beat Zaragoza 4-0
A goal of real class midway through the first half from Karim Benzema gave Madrid the lead, with further strikes from Sergio Ramos and Cristiano Ronaldo sealing the win despite Roberto Soldado scoring a second-half brace for the hosts.
The game started at a frenetic pace with both sides looking to push forward whenever possible. Valencia had their first shot within 60 seconds while Madrid nearly took the lead on 10 minutes when Karim Benzema flashed a well-struck shot wide from the edge of the area.
The French international made no mistake with his next chance, though, controlling a quick free-kick from Xabi Alonso brilliantly with his left foot before rifling a fantastic volley into the back of the net from 18 yards to give his side the lead.
Madrid were beginning to enjoy themselves as the half wore on, Sami Khedira having an explosive shot chalked off for offside, while Ronaldo was at his effervescent best, indulging in a series of 'keepie-uppies' whilst running with the ball in the middle of the pitch.
Valencia were having their moments as well, however, and former Real Madrid academy player Dani Parejo went close, while the locals also had a penalty appeal turned down by referee Jose Antonio Teixeira Vitienes.
Ronaldo nearly made it 2-0 just before half-time, racing through on goal only to see his effort pushed away well by Diego Alves.
Valencia went close to equalising shortly after the break, Jeremy Mathieu sliding a tantalising ball across Casillas' six-yard box with Soldado inches away from diverting the ball into the net.
Madrid began to lose their discipline as Valencia looked to being edging their way back into the game; Ronaldo, Marcelo and Mesut Ozil all finding their way into the referee's book in quick succesion.
Despite their ill-discipline, it was Madrid who got the next goal of the game, Sergio Ramos heading home off the post from an inviting Mesut Ozil corner. The goal appeared to give Madrid the breathing space they needed to see out the rest of the game.
Valencia, however, had other ideas. Soldado rifled home a rebound through a crowded penalty area to make it 2-1 after Pablo Hernandez's shot appeared to have been pushed away to safety.
Ronaldo soon restored Madrid's two-goal lead with a fine finish from an acute angle after Diego Alves had wrongly rushed from his line to meet the attacker.
The end-to-end nature of the game was far from over, however, with Soldado again getting in on the act, the in-form forward grabbing his second of the game after Pablo stretched and superbly kept the ball in by crossing at full stretch for his team-mate to poke home.
The game ended in controversy as Valencia's players surrounded the referee after Higuain had appeared to block a last-minute goal-bound effort with his arm.
An eleventh win in a row maintains Madrid's three point lead over Barcelona at the top of the table. Valencia, meanwhile, are now seven points off the pace in La Liga, but can take pride from the manner of their second-half performance in this match.