The 24-year-old Khan, defending his WBA belt, was expected to be stretched by veteran IBF champion Judah.
But Khan dominated from the opening bell, forcing the fight and landing at will with his jab.
The end came when Khan landed with a crunching right hand to the body and Judah was unable to make the count.
The punch looked borderline low, but replays showed it landed on Judah's belt line and was not a foul blow.
"He went down and it was above the belt," Khan, who will now target the winner of September's clash between Floyd Mayweather and Victor Ortiz, told BBC Radio 5 live.
"It was nowhere near below the belt, it was a great shot. Zab's a great fighter. I respect him a lot."
Judah did not agree with his rival's assessment, claiming: "Everyone in world who saw the fight will see that's a low blow. I thought he [the referee] was giving me time to get up.
"He then said 'over'. I thought he was giving me a standing eight-count. I didn't understand that."
The one-sided nature of Khan's fifth successful defence of the title he won in 2009 will have surprised many as Judah had fought some of the biggest names of the modern era.
Judah, a five-time champion, had been in with Kostya Tszyu, Floyd Mayweather and Miguel Cotto in a professional career spanning 49 fights and 15 years but rarely had he been on the receiving end of such a one-sided beating.
Khan looked the more nervous of the two before the action commenced at the Mandalay Bay Events Centre, but it was the Briton who started fastest, backing his 33-year-old rival up behind his piston-like jab.
BEN DIRS BLOG
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On the evidence of Saturday night in Vegas, is Khan the best fighter in Britain? He may just be
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Southpaw Judah did land with one flashing right hook in the first round but this immediately led to a clash of heads and the home fighter did not look comfortable thereafter.
Judah's trainer, former four-weight world champion Pernell Whitaker, was sounding alarm bells as early as the end of the second round, imploring his man to stay low and unsheath the left hand.
But Judah, a noted speedster, simply had no answer to the quickness of Khan's hands and round three was more of the same, with Khan constantly beating his opponent to the punch.
Judah was starting to show real signs of wear and tear by the fourth, his nose bleeding and his right eye showing the effects of that first-round collision.
And early in the fifth Judah was sending out distress signals, complaining to referee Vic Drakulich about Khan's use of the head - but the worst was still to come.
With 13 seconds remaining in the round, Khan set Judah up with an overhand right before sending home a withering right to the body, which doubled Judah over and rendered him unable to continue.
Before the fight Khan admitted he might need two or three more fights before he is ready to take on American legend Mayweather and, despite a dazzling display, his next fight is more likely to be against Mexican legend Erik Morales.
WHO NEXT FOR KHAN?
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The winner of the September clash between Floyd Mayweather and Victor Ortiz?
WBC & WBO title-holder Tim Bradley?
Mexican legend Erik Morales?
Sheffield prospect Kell Brook?
Morales is a three-weight world champion but has seen better days - however, he remains the biggest name in the light-welterweight division and would look good on Khan's record.
Another option is WBC and WBO title-holder Tim Bradley, who was in the frame to fight Khan this time around. However, Khan's camp claimed the American did not fancy the fight, despite the offer of a 50-50 split.
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