Eduardo Vargas fired Chile ahead with an outstanding shot from outside just before the break and in the 56th minute Arturo Vidal latched on to a great pass from Alexis Sanchez to extend the advantage.
Paraguay netted a consolation goal just before the end when Roque Santa Cruz took advantage of a mistake to score.
"We made an important move, but the clash against Bolivia will be a final," said Chile boss Eduardo Sampaoli.
Peru kept their World Cup dream alive as they saw off third-placed Ecuador 1-0 at Estadio Monumental, Lima.
Bayern Munich attacker Claudio Pizarro scored the only goal after 12 minute with a superb volley from inside the box.
Fifth-placed Venezuela claimed a point with a 1-1 draw in Bolivia.
Venezuela took control in the second half and broke the deadlock near the hour mark when midfielder Juan Arango headed home a corner kick.
With five minutes to go, visiting goalkeeper Renny Vega failed to react in time to clear a corner and Jhasmany Campos levelled the clash with a header.
Venezuela boss Cesar Farias, whose side occupy the play-off spot, two points clear of Peru, said: "We do not have to think with our heart, as logic says that we are in the fight to get a place in the World Cup. If we want to go, we have to defeat a giant in Uruguay in the next round of fixtures."
Bolivia head coach Xavier Azkargorta said: "We should beat Peru and Venezuela at home. These lost points put us in this situation."
In other match, Argentina, who are at the summit with 25 points from 12 games, played out a goalless draw with Colombia.
Colombia sit second on 20 points alongside Ecuador, while Chile have 18 and Venezuela 16.