His 14-under-par-124 total obliterated the former 36-hole record. Alessandro Tadini completed two rounds last year in 127 strokes, but Karlsson posted a more impressive record on Friday.
Karlsson's two-day total of 124 established a new European Tour record for lowest opening 36-hole mark. The old number of 125 was first set by Tiger Woods in the 2000 WGC-NEC Invitational and later matched by Frankie Minoza at the Singapore Masters the next year.
'Of course I realize there are lower scores to par than mine, but it's always nice to have that number under my belt,' said the Swede.
Phillip Archer, who missed a 7-foot birdie putt on his 18th hole Thursday that would have made him the first player to shoot 59 on the European Tour, only managed a 1-under 68 on Friday. He is tied for second place with Paul Broadhurst (64) and Simon Dyson (62) at minus-10.
Colin Montgomerie, an eight-time winner of the Order of Merit, flew out of the gate with five birdies in his first seven holes. He struggled the rest of the way in with three bogeys and a birdie for a 3-under 66. Montgomerie is alone in fifth place at 9-under-par 129.
'Disappointing, very disappointing,' sighed Montgomerie. 'I was 5 under after seven - a great start. I blew it really. To finish 3 under from then on was very disappointing.'
Karlsson, like Montgomerie, played brilliantly at the start of his second round. He birdied five holes in a row from the third to surge up the leaderboard, but Karlsson was momentarily derailed by a bogey at eight, the hardest hole at the Celtic Manor Resort.
The Swede overcame the bogey at eight with a birdie at the ninth, his second in as many rounds. At the par-4 10th, Karlsson missed the fairway right and was forced to pitch back into the fairway. He knocked his third to 40 feet and lagged it into tap-in range. Karlsson made another bogey, but he parred his next four holes and was still comfortably ahead.
At the par-3 15th, Karlsson played a safe tee ball 35 feet from the flag. He rolled in that birdie putt to reach 13 under par, then converted a short birdie putt at the par-5 16th.
Karlsson appeared to be in trouble at the par-4 17th when his drive found a right trap. His approach landed in the left rough, but he pitched to 4 feet and ran home the par save.
He had a good look at birdie on the closing hole as his second stopped 12 feet over the flagstick. Karlsson missed his birdie putt left, but still takes a four-shot lead into the weekend.
Karlsson, 36, was once a rising star on the European Tour and nearly made the 1999 Ryder Cup team. He owns five victories on the circuit, but has not visited the winner's circle since the 2002 Omega European Masters.
Karlsson knows why.
'My putting has been holding me back,' admitted Karlsson. 'Last year I played well for long periods, but my putting was terrible. I have worked very hard on the mental side and really, really tried to enjoy it out there. It's easy to say I am taking one shot at a time, but I am pulling it off.
'I used to get hot under the collar and I am working to improve that. This is my sixth week in a row and in the past I could never do that. I couldn't stand it. I was too tough on myself and mentally became exhausted.'
Jose-Filipe Lima posted the low round of the day on Friday with an 8-under 61. He is tied for sixth place with Francois Delamontagne, who shot a 2-under 67 in round two, at minus-8.
Matthew Millar (62), Gary Orr (63), Marcel Siem (66), Johan Skold (66) and Lee Slattery (67) share eighth place at 7-under-par 131.
The 36-hole cut fell at 1-under-par 137 and the most notable player not to make the weekend was the defending champion. Miguel Angel Jimenez carded a 4-over 73 and finished 36 holes at plus-5.