The visitors took a second-half lead thanks to an own goal by Jordi Amat, who then scored an outstanding goal at the other end to equalise.
However, Manucho fired Miroslav Djukic's side in front once more on 79 minutes.
Both teams were committed to playing attractive football with a lot of short passes, but there were few real chances in the opening 45 minutes.
Rayo's only attempts on goal were two wayward shots from Chori Dominguez and Leo Baptistao respectively, plus a free-kick from Piti that went narrowly wide.
Valladolid came closer to scoring. Omar Ramos used composure to create space for himself on the edge of the area but sent his shot just wide of the top corner, while Alberto Bueno forced a save from Ruben Martinez and Rafael Sastre then struck the bar.
The second half was largely uneventful but suddenly sprang into life on 70 minutes.
First Rayo created their best chance of the game. Chori Dominguez played Franco Vazquez in and his shot was pushed out by Dani Hernandez into the path of Tito, but he too was denied by the Valladolid goalkeeper.
A minute later Valladolid were awarded a free-kick, which Bueno chipped right into the danger area. Rayo keeper Ruben came out to claim the ball but misjudged it and it bounced in off the head of Rayo defender Jordi Amat, who had risen in the air to challenge Valladolid's Henrique Sereno.
The centre-back soon redeemed himself for his mistake. Almost immediately after the re-start, he tried an audacious shot from the middle of the pitch, which looped over Hernandez and into the net.
Amat had never scored a professional goal before, but the strike was an impressive way to open his account.
Rayo were lifted by the goal and went out for the winner to maintain their perfect record at home since the turn of the year. However, they were punished for their ambition.
Alejandro Galvez was dispossessed by Bueno in his own half and the midfielder raced away towards goal before squaring the ball to Manucho, who tapped into the net from just a few yards out.
Bueno, one of the standout performers in the match, then struck the bar before being substituted.
Rayo coach Paco Jemez made two attacking substitutions with the clock running down, bringing off full-back Jose Casado and defensive midfielder Javi Fuego for forwards Andrija Delibasic and Raul Tamudo, who made his first appearance since returning to the club in the January transfer window.
The striker, whose last minute goal against Granada on the final day of last season kept Rayo in the Primera Division, was almost the hero again in injury time, but his header from a corner was tipped over the bar by an on-form Hernandez.
The result means Rayo stay in seventh place in the league table, while Valladolid move 13 points clear of the relegation zone.