Atletico stunned their bitter local rivals 2-1 at Real's own Bernabeu stadium in last season's King's Cup final and followed up with a 1-0 success at the same venue in La Liga at the end of September.
However, Real have greatly improved as the season has progressed and they dumped holders Atletico out of this term's Cup 5-0 on aggregate in their two-legged semi-final this month.
Unbeaten in 27 matches in all competitions, Real are in ominous form before Sunday's trip across town to Atletico's Calderon stadium and will be buoyed by their 6-1 success at German side Schalke 04 in the Champions League on Wednesday.
They took over from FC Barcelona, who host promoted Almeria on Sunday, at the top of La Liga last weekend when both Barca and Atletico suffered surprise defeats.
Real have 63 points with 13 games left, with Barca, chasing a fifth title in six years, and Atletico on 60.
Real coach Carlo Ancelotti, who took over from Jose Mourinho at the end of last term, has eliminated the defensive lapses that cost his team earlier in the season.
With Cristiano Ronaldo, Karim Benzema and Gareth Bale in a three-pronged attack, the Italian has one of the most lethal forward lines in football and each scored twice in Wednesday's romp in Gelsenkirchen.
"We have a lot of potential up front," midfielder Xabi Alonso, whose composure and passing ability help Real control their opponents, told reporters after the Schalke game.
"We create a lot of chances and it's good news that the three forwards are fired up," added the Spain international.
"Sunday's game is very important for us and it is going to be very tough.
"We are confident but we know that each match is a different story. If we don't go out with the same focus as today any team is capable of giving us a scare."
Atletico, who are also through to the last 16 of the Champions League, are mounting a genuine challenge for the La Liga title for the first time since they won a league and Cup double in 1996.
Diego Simeone, a former Argentina midfielder, was part of that team and has transformed the club since he took over as coach at the end of 2011, leading them to a Europa League triumph in 2012 and the Cup success last season.
However, last weekend's shock 3-0 reverse at Osasuna, when Simeone left a number of key players out of his starting lineup, suggested they may not have a deep enough squad to cope with a gruelling calendar.
Fullback Juanfran said the team are keen to put last week's stumble behind them and reignite their title challenge.
"We are keen to prepare the match well and if we beat Madrid things will be different," he said on Atletico's website (www.clubatleticodemadrid.com).
"We are playing at our stadium, where we are unbeaten (in La Liga this season) and I am convinced we will play a good match and win," he added.