Spain's Benat Intxausti took second in Lago Laceno, with Spain's Joaquim Rodriguez leading in a 20-strong group for third.
Colnago-CSF rider Pozzovivo attacked on the second category Colle Molella climb, 6.5km from the finish, for a lone victory.
Hesjedal leads overall for a second successive day, while Rodriguez moved up to second ahead of Italy's Paolo Tiralongo.
A four-man break formed early in the 229km stage from Sulmona.
Andrey Amador, Julien Berard, Tomasz Marczynski and Miguel Minguez escaped from the peloton and built up a maximum lead of 11 minutes.
Amador, who started the stage in 26th position on GC, was the virtual race leader but Hesjedal's Garmin-Barracuda team-mates reduced the deficit over the final 100km.
Amador, the Costa Rican rider from Movistar, and Marczynski broke away from their fellow escapees with 55km when their advantage had dropped to under five minutes.
But they were reeled in with 16km to go as the route covered winding roads with continuous twists and turns up to Montella before the steep ascent to the Lake Laceno plateau where the stage exploded and Pozzovivo, cheered on by dozens of supporters waving his photos from his nearby home town of Policoro, claimed victory.
"I hope this victory, my first in the Giro, inspires other riders from the south of Italy to try to turn professional in these difficult financial times," Pozzovivo said.
"There are just two pros from my region and I'd like there to be more.
"The last two kilometres seemed never ending but my heart told me I could win it because this stage is the closest the Giro comes to my home."
Thirteenth overall after his strong mountain performance, Pozzovivo - who describes himself as a piano-playing amateur meteorologist - he did not rule out going for the overall victory.
"I'm usually strongest in the third week of a Grand Tour, so that's a good sign. This Giro route is tough but not as inhumane as previous years, so that may suit me too."
Overall Hesjedal leads Rodriguez by nine seconds and the Canadian said he had struggled on the relentlessly steep slopes of the Colle Molella, a climb deep in the Picentini mountain range which is home to some of the last wolves in Europe.
"It was a tough day, the tempo that was set on a three kilometre climb at 10 percent was tough. I had to buckle down and try and defend the jersey.
"If it worked out I was able to stay in contact and that was it."
He should have fewer problems on Monday's shorter, flat 166-km run from San Giorgio del Sannio to Frosinone.
The Giro finishes on May 27th in Milan.