Munro, the left-handed opener from New Zealand, hammered an unbeaten 87 off 59 balls and carried Islamabad to 198-3. Luke Ronchi also contributed 48 off 31 balls in a century stand with his countryman Munro as Lahore struggled to stem the flow of runs after winning the toss and electing to field.
Lahore, which on Tuesday made an impressive 209 against title defender Quetta Gladiators, was bundled out for 127 in 18.5 overs as Rumman Raees took 3-29 and left-arm spinner Zafar Gohar chipped in with 3-31.
Quetta held the previous PSL record of biggest victory in terms of runs when they beat Karachi Kings by 67 runs at Dubai, United Arab Emirates during the third edition of the tournament in 2018.
Islamabad climbed to second place in the points table with seven points from seven matches -- one behind leaders Multan Sultans.
Lahore suffered a big blow when bowler Shaheen Afridi was ruled out with a left thumb injury that he sustained during his team's win against Quetta. Fast bowler Dilbar Hussain then walked off the field after bowling 2.1 overs due to cramps.
In the absence of Afridi, Lahore struggled to contain the New Zealand opening pair as the batsmen put on a 103-run stand off 67 balls before offspinner Mohammad Hafeez struck off his first delivery.
Ronchi hit six fours and a six before holing out at deep backward square leg off Hafeez, but Munro continued to prosper against second-string fast bowlers Mohammad Faizan (1-41) and Salman Irshad (1-43) by hammering eight fours and three sixes.
Dale Steyn dealt a severe blow to Lahore's run-chase when Chris Lynn skied an easy catch off the fast bowler's second delivery. Ben Dunk, the architect of Lahore's win over Quetta with 93 off just 43 balls on Tuesday, was caught behind off Islamabad captain Shadab Khan's sharp turner after scoring 25.
Lahore's middle order succumbed to Shadab and Gohar's spin and Rumman ran through the tailenders to leave Lahore in tatters at 89-9 in the 15th over. No. 9 batsman Usman Shinwari top scored with 30 to reduce the margin of defeat.
But Shinwari's effort off 14 balls was not enough to save Lahore from losing its fourth game in the tournament and left the home team at the bottom of the table with just two points from five matches.