He fired a 4-under 65 on Saturday to finish three rounds at 18-under-par 189, which is good for a six-shot lead.
Karlsson's 189 score is a new European Tour record for lowest 54 holes, topping Tiger Woods' former mark of 192 from the 2000 WGC-NEC Invitational at Firestone.
The 189 obliterated Paul Casey's 2004 tournament 54-hole record by eight strokes. The six-stroke margin is also the largest on the European Tour this season.
Although Karlsson will not be sitting back on Sunday.
'There's another 18 holes to go and if someone throws in a 61 behind me I will still have to play well to win,' said Karlsson. 'If you start thinking that it's yours to win, then you are in big trouble. I'm trying to stay away from those sorts of thoughts all the time.'
Paul Broadhurst birdied the last hole to shoot a 2-under 67. He is alone in second place at 12-under-par 195, which is one shot better than Gary Orr, who carded a 4-under 65 at the Roman Road Course at Celtic Manor Resort.
The Swede began the third round with a four-shot lead and flew out of the gate. He drained a 4-foot birdie putt at the first, then added another birdie from less than a foot at the par-5 third. Broadhurst kicked in a short birdie putt at the fifth to get within three of the lead.
That was a close as Broadhurst would get. He shanked his approach from the left rough at seven and walked off with a bogey. Broadhurst also bogeyed eight to fall five behind Karlsson.
Karlsson hit plenty of long drives in the fairway on Saturday, including a bomb at the ninth. He knocked his second to 12 feet, then drained his birdie putt. Karlsson sank a 20-footer for birdie at the 10th to move to 18 under par, which gave him a seven-shot lead.
Karlsson made his first mistake of the round with an errant drive at the 14th. Broadhurst went even farther right, hitting two courtesy cars, but luckily got a free drop. Broadhurst went on to make bogey, a score Karlsson would have gladly taken.
The Swede made a curious decision to go at the green with his second from the rough. Karlsson's ball never had a chance at the putting surface and landed in the pond in front of the green. He missed a 35-footer for bogey, but still held a six-shot lead thanks to Broadhurst's mistake at the same hole.
Karlsson atoned for the error quickly as his eight-iron second shot at the par-5 16th stopped two feet from the hole. He tapped in the eagle putt, but dropped a shot at 17 thanks to a drive than landed in the 16th fairway.
Broadhurst birdied 16 and hit his approach to 2 feet at the last. That birdie moved him into sole possession of second place at minus-12, but Karlsson holed a 10-foot birdie putt at the same hole to move six ahead.
Karlsson owns five European Tour victories and four of them came when he held at least a share of the 54-hole lead. He has not won since the 2002 European Masters, but a win on Sunday puts him in a good spot.
If Karlsson can break par on Sunday, he would break Ian Woosnam and David Llewellyn's all-time low total of 258 on the European Tour. It would also solidify Karlsson's standing on the Ryder Cup list, which would certainly delight the Swede. He finished 11th on the points list in 1999 and was passed over for a spot by then captain Mark James.
'It was a shock and I questioned why it happened, but he was the captain and made his decision,' said Karlsson. 'It would be a fantastic bonus to get in this team, but there are a lot of big tournaments coming up and a lot of good players who would expect to be in the side. But first, I have to take care of tomorrow.'
Broadhurst is also in the mix for a Ryder Cup spot, but knows how difficult his task will be on Sunday.
'A six-shot lead is massive the way he's playing,' admitted Broadhurst. 'He's making it like a pitch and putt track, to be honest. He's playing nicely and it's going to be tough to catch him.'
Simon Dyson (69) and Henrik Nystrom (64) are tied for fourth place at 10-under-par 197.
Colin Montgomerie only managed an even-par 69 on Saturday and the Scotsman is tied for sixth place with Matthew Millar (67), David Park (64), Johan Skold (67) and Anthony Wall (63). The group is knotted at 9-under-par 198.