Olazabal is through three rounds at 6-under-par 204 for a one-stroke lead over Paul Broadhurst and Soren Hansen. Broadhurst, the overnight leader, struggled to a 2-over 72 in his third round, while Hansen climbed the leaderboard with a 4-under 66 on Saturday.
Wade Ormsby (70), Bradley Dredge (67) and Mattias Eliasson (70) share fourth place at 4-under-par 206, one stroke ahead of five players tied for seventh at Pula Golf Club.
Olazabal began his round in second place behind Broadhurst, but while the overnight leader stumbled to a bogey at No. 1, Olazabal strung together three straight pars before a birdie at the par-4 fourth put him at 6 under.
The two-time Masters champion then had a run of seven consecutive pars before dropping two strokes in a three-hole span with bogeys at 12 and 14. Olazabal was one shot back with two holes to play before he rolled in an 8-foot birdie putt at the 17th.
'It was a big swing,' commented Broadhurst, who then fell one back when he three-putted the 18th for a bogey. 'Going down the 16th I thought there was a chance to go two or three clear. The greens are not so good, but that's no excuse. It's the same for everybody and I putted badly all day.'
Players indeed struggled with bumpy greens during a round that saw a lot of high scores. Olazabal, who is currently working on a redesign of the Pula course, seemed somewhat apologetic for the conditions.
'Some have a different speed than others,' Olazabal acknowledged. 'I don't know if it has to do with the rain they had, but I am pretty sure they (the course owners) will take good notice and get them in better shape.'
Olazabal is in good shape for his first victory since winning the Hong Kong Open in 2002. If he can hold on, he will become the third Spaniard in the three years of this event to take the title.
Sergio Garcia is the defending champion, while Miguel Angel Jimenez won the inaugural event in 2003. Jimenez is six strokes back after a third-round 72, but Garcia is still in the mix at minus-1.
'Believe it or not I still have a chance, but it would be impossible for me to shoot any higher than I have so far,' said Garcia, who stumbled to a 1-over 71 on Saturday.