(CNN) -- Mercedes are preparing for a "true test" in Sunday's Monaco Grand Prix after Nico Rosberg catapulted the Silver Arrows to the fastest time in practice, with teammate Lewis Hamilton a close second.
The German driver, who was raised in Monte Carlo, set the pace around the city's tight and twisting streets with a leading lap of one minute 14.769 seconds on Thursday.
"It was a very productive day for us," said Rosberg, who has taken pole position for Mercedes at the last two races in Bahrain and Spain but failed to translate that into podium finishes due to the team's struggles with tire degradation.
"It seems that we are quick again on one lap but we've been working hard again to make improvement to our race pace.
"It will be interesting to see where we are compared to the others over the weekend as it's not really representative today."
Mercedes arrived in the principality as favorites because the street circuit -- the shortest and slowest on the Formula One calendar -- plays to the strengths of their 2013 car.
Qualifying is crucial in Monaco, where there are few overtaking opportunities, and Mercedes will be seeking to win a fourth successive pole position in Saturday's qualifying.
Michael Schumacher also took pole in Monaco last season, in a Mercedes car not vastly different to this season's charger, which will also give Rosberg and Hamilton confidence that they can repeat his feat.
The slower circuit should also be advantageous to Mercedes because it isn't as abrasive on the tires. Tire wear, especially on the rear, has been the team's Achilles heel this season on race days.
Rosberg and Hamilton completed 97 laps during Thursday's second practice session in Monaco -- more than any other team -- in an attempt to test their pace and tire performance during long stints on the circuit.
"I'm pleased with what we have achieved here in Monaco," said Hamilton, who won in the principality in 2008 on his way to winning the world championship for McLaren.
"I need to improve my one-lap pace. The car is almost there, the pace looks good but we'll work on those areas which can be improved before the weekend."
There were predictions in Monaco that some teams might try to stop just once during the race -- which would be a marked contrast to the five-stop strategy the majority of teams had to use last time out in Spain because of Pirelli's rapidly degrading tires.
Mercedes team principal Ross Brawn agreed there are some important decisions to be made if the team can capitalize on their potential pace and win their first race of 2013.
"The true test will come on Sunday," he said. "It's a pleasing start but now we have to make the right decisions for Saturday and Sunday."
Double world champion Fernando Alonso kept the Mercedes pair in his sights, though his Ferrari was just under half a second slower than Rosberg's leading time.
The Spaniard took some avoiding action to escape a hairy moment in second practice when he came into Rascasse corner to be confronted with Nico Hulkenberg's Sauber on a slower lap.
Alonso, winner of the last race in Spain, said he had come to Monte Carlo with even more motivation to be the first driver this season to triumph in successive races -- and also make a bit of history.
"I could be the first man to win for three different teams and for sure that is a huge motivation to do it," said Alonso, who won in Monaco for Renault in 2006 and McLaren the following year.
"Of course we want to win the championship, but Monaco is a special race, let's say the most important race of the championship.
"Because everyone in the world has heard something about Monaco Grand Prix, Indy 500 and Le Mans, the three races that everyone knows about even if they are not motorsport fans."
World champions Red Bull admitted they were still looking for answers after their first run around Monaco's legendary circuit.
Mark Webber, a two-time Monaco winner including last year, set the fifth fastest time with triple world champion Sebastian Vettel recording the ninth quickest lap.
When asked if Red Bull could match the pace of the Mercedes, Webber responded: "If we could, we would have done it today.
"One minute and 14.7 seconds round here is not hanging around but let's see how things go. You will never come to Monte Carlo and have the perfect day.
"I think traditionally we're never too electric here on Thursdays."
Unlucky for Lotus
Vettel missed time on track in second practice while his Red Bull team worked on his car, which the German later said had a problem with its KERS device -- a kinetic energy recovery system which adds a boost of power.
"It is not completely ideal but that is Friday -- or in this case Thursday," he said, referring to Monaco traditionally having practice a day earlier than the other races, which gives teams more time to prepare for qualifying.
"We had a KERS problem this afternoon, so I didn't use that. The guys know what the problem was with that," Vettel added.
"My run on super-soft tires was very poor, so we need to understand why."
Lotus will need to patch up Romain Grosjean's car ahead of qualifying. The Swiss driver was the only man to fall foul of Monaco's narrow streets as he crunched the front of his car into the barriers at the Sainte Devote corner.
His teammate Kimi Raikkonen, who is second in the championship four points behind Vettel, was sixth fastest in practice.