Judge Don Givens scored it 116-114 and Hilton Whitaker had it 115-114 for Williams. Al Bennett scored it even at 114-114. The 29-year-old Williams improved to 40-2 with 27 KOs. Lara, 28, dropped to 15-1-1 with 10 KOs.
It was Williams' first fight since November, when he was knocked out in the second round of his rematch against middleweight champion Martinez.
Lara, who defected from Cuba and is based in Miami, repeatedly landed clean Martinez-style overhand lefts and turned Williams' face into a bloody mess at the end, according to a Fightnews.com report.
According to CompuBox, Williams threw 1,047 punches but landed only 200 (19 percent). Lara landed 224 of 530 punches (42 percent).
"I thought it was close. I thought we had it," Dan Goossen, Williams' promoter, told ESPN.com. "It's Paul's style, he gets hit. He's a fighter out there. Part of Paul Williams fighting is getting hit and making sure he comes forward and is hitting the other guy.''
Many others saw if differently than Goossen.
"Decision was indescribably bad. Boxing world should recognize this as a win for E. Lara," boxing analyst Max Kellerman posted on Twitter.
"What a disgrace! The biggest robbery this year! Williams had no business winning the fight vs Lara! Lara should have won easy UD," ESPN Deportes' Jamie Motta posted on Twitter.