The record nine-time world rally champion was runner-up in the past two Dakars.
His win in stage seven reduced his deficit on overall leader Carlos Sainz by 10-and-a-half minutes although he still trails by exactly 19 minutes as the race in Saudi Arabia enters its final week.
Loeb registered his 26th overall stage success on the drive from Riyadh to Al-Duwadimi.
Loeb, in his eighth Dakar, inherited second overall after Mattias Ekstrom was knocked out of title contention by mechanical issues in his Audi hybrid.
Sainz, a three-time Dakar winner, finished fourth on the day in his Audi.
"Ekstrom being eliminated was great, but there's another one left. Gaining time on Carlos Sainz is good news" said Loeb.
In the bike category, American Ricky Brabec leads Ross Branch by a slender second overall after Chile's Ignacio Cornejo took his third stage this year.
'Nacho', Brabec's teammate at Honda, crossed the line more than half a minute up on defending champion Kevin Benavides (KTM).
The Chilean jumped to third in the general rankings, but is still 6min 48sec.
Brabec was fifth on the stage.
"The day after a rest day is never easy," the American said.
"We started off this morning third, so it was a bit tricky. All the guys I wanted to beat were behind me, so it's been a tough day. I haven't had a rear brake since like kilometre 40 or 50, so it's been a slow day for me."
Branch described his day on his two-wheel office as "one I'd rather forget".
The rider from Botswana added: "We had a few technical issues early on in the stage, so it was really frustrating and I made a lot of mistakes.
"There were so many dangers and I was really riding on the limit. I just have to get the bike back, get it fixed up and ready for tomorrow."
Monday's eighth stage is a 458km special towards the north of the kingdom.
