RNA polymerase II (Pol II) utilises the same active site for polymerization and intrinsic cleavage. Pol II proofreads the nascent transcript by its intrinsic nuclease activity to maintain high transcriptional fidelity critical for cell growth and viability. The detailed catalytic mechanism of intrinsic cleavage remains unknown. Here, we combined ab initio quantum mechanics/molecular mechanics studies and biochemical cleavage assays to show that Pol II utilises downstream phosphate oxygen to activate the attacking nucleophile in hydrolysis, while the newly formed 3'-end is protonated through active-site water without a defined general acid. Experimentally, alteration of downstream phosphate oxygen either by 2'-5' sugar linkage or stereo-specific thio-substitution of phosphate oxygen drastically reduced cleavage rate. We showed by N7-modification that guanine nucleobase does not directly involve as acid-base catalyst. Our proposed mechanism provides important insights into the understanding of intrinsic transcriptional cleavage reaction, an essential step of transcriptional fidelity control.