Pacquiao, 30, dominated throughout and had his Puerto Rican opponent down in the third and fourth rounds with his fierce left hook doing the damage.
More punishment followed for Cotto before referee Kenny Bayless stopped the fight 55 seconds into round 12.
The Filipino’s victory saw him win his seventh title in seven weight classes.
“I tried my best to knock him out,” Pacquiao said.
“I thought in 11th round they would stop the fight. I am surprise he continued to fight.”
Cotto’s face was swollen, blood was flowing from his nose and his cuts, and he simply couldn’t stop Pacquiao from bouncing inside and throwing both hands at will.
“I didn’t know from where the punches were coming,” Cotto said.
“Manny Pacquiao is one of the best boxers I ever fought.”
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Pacquiao’s victory sees him confirm his status as the world’s best pound-for-pound boxer and takes his record to 50 wins, three defeats and two draws with 38 knockouts.
The win over 29-year-old Cotto also sets up the possibility of a mouth-watering clash with unbeaten Floyd Mayweather Jr.
And Pacquiao’s trainer Freddie Roach admitted after the fight that he would like to see his man take on the American in a fight that would have global appeal.