Manley finished 36 holes at 11-under 133 and is one clear at Oceanico Victoria Golf Club.
Alvaro Quiros also shot a 4-under 68 on Friday and is alone in second place at 10 under.
Paul Lawrie, the 1999 British Open champion, fired a 7-under 65 in the second round and is tied for third place with Magnus A. Carlsson, who managed a 6-under 66 on Friday. The pair is knotted at 9-under 135.
Manley collected his first birdie of the round at the second hole, then parred his next four. He dropped a shot with a bogey at the seventh, but it was strong play in the middle of his second nine that allowed him to keep his overnight lead.
Manley eagled the par-5 12th to reach 9 under par for the championship. He tallied back-to-back birdies from the 15th to get to 11 under, then parred out for the second-round lead.
'I played pretty good today,' said Manley. 'Didn't quite make as many putts as yesterday, but I would definitely have taken 68 at start of the day so delighted.
'I definitely would have taken 68. I know what I've got to do now ' I've just got to commit to the shots. If they don't come off they don't come off, but as long as I commit that's all I can ask.'
Manley is currently 174th on the European Tour Order of Merit and is in need of some big weeks if he is to avoid Q-School. Manley thinks he has figured out the problem that plagues him in tournaments.
'To be honest, I played pretty good all year, but just not taking it into tournament golf,' said Manley. 'I played great on a Tuesday and Wednesday, practiced really well and then I step on the first tee on the third day and just not quite performing to the way I've been playing on Tuesday.
'It's just confidence or belief and obviously this week will give me a little bit more belief to go out there and know I'm good enough.'
Quiros was flawless on Friday with four birdies and no bogeys. He mixed birdies at one and five with birdies on both par 5s on the back ' 12 and 17.
The leading money winner this year on tour, Robert Karlsson (67), Felipe Aguilar (68), Gregory Bourdy (67), Jean-Francois Lucquin (69) and Jyoti Randhawa (70) share fifth place at 8-under 136.
Martin Kaymer (65), Ross Fisher (70) and Mark Foster (71) are knotted in 10th place at 7 under.
The 36-hole cut fell at even-par 144. Among the notable players who missed the weekend were Thomas Bjorn (145), Jean van de Velde (147), last week's Madrid Masters champion Charl Schwartzel (148) and Colin Montgomerie (149).