'I played really well today. I hit a lot of greens, a lot of fairways and putted really well,' said Morgan. 'I'm happy.'
Kraft Nabisco Championship winner Grace Park posted a 5-under 66 to share second place with Amy Hung and Young-A Yang at 7-under-par 135. Sherri Steinhauer was two shots further back at 5-under-par 137.
Morgan, who shared second at the Chick-fil-A Charity Championship earlier this season, started on the 10th tee and picked up her first birdie of the day at the par-4 12th at Wykagyl Country Club.
She began her surge up the leaderboard with the first of three consecutive birdies starting at the par-5 15th. Morgan moved to 8 under around the turn to pass Park, who was already in the clubhouse at minus-7.
Morgan started to distance herself from the competition with a birdie at the par-5 first after her third shot landed within 8-feet of the hole.
The 29-year-old knocked her tee shot to 15 feet for a birdie at the par-3 seventh and followed that up with a birdie at the eighth to hold the 36-hole lead on the LPGA Tour for the first time in her career.
'Well, it doesn't happen very often but I'm getting more used to being on top of the leaderboard,' said Morgan, a native of Wales. 'Probably a good start for this weekend.'
Park had an early start on the back side to take the clubhouse lead before Morgan's afternoon run.
The Korean collected four birdies and two bogeys over her first nine holes and made a rally on the front nine, starting with a birdie at the second.
Park drained a 20-footer for a birdie at the seventh and dropped a sand-wedge within a foot of the hole at the eighth. Park tapped in for birdie for her share of second.
'The past two days my game has been very similar, just hitting really good tee shots,' said Park. 'The greens were a lot smoother and faster. So, I was able to have a little more confidence knowing that it's going to roll to where I intend it to.'
Yang, who was one of three co-leaders after the opening round, was cruising at 10 under with a chance to join Morgan in the lead before stepping onto the ninth, her last.
The 25-year-old sent her tee shot into the water and walked away with a triple-bogey to fall back into a tie for second after a round of 69.
'It's always bad to finish bad,' said Yang. 'It leaves a bad taste, but I still have something to work for tomorrow and Sunday.'
Silvia Cavalleri, who held a share of the lead after round one, managed a 1-over 72 to join Jeong Jang and Michele Redman in a tie for sixth at 4-under-par 138.
The 36-hole cut fell at 5-over-par 147 with 79 players qualifying for the weekend. Defending champion Hee-Won Han survived at 4-over-par 146.
Se Ri Pak missed the cut badly at 9-over-par 151 after a round of 78.