Kahn tallied seven birdies and an eagle on his front nine to go out in 27. He joined Spain's Jose Maria Canizares (1978 Swiss Open at Crans-sur-Sierre), Sweden's Joakim Haeggman (1997 Alfred Dunhill Cup at St Andrews) and England's Robert Lee, who turned the trick twice (1985 Johnnie Walker Monte Carlo Open at Mont Agel and 1987 Portuguese Open at Estoril), as the only players in European Tour history to post a 27 over a nine-hole stretch.
Kahn also had a shot at the tour's first 59. He needed a chip-in eagle at the Celtic Manor Resort's final hole, but could not get it to fall. Kahn missed the birdie try coming back so it was a course-record, 11-under-par 61. That score bettered the 63 Jarrod Moseley posted in last year's third round.
The Englishman's 36-hole total of 14-under-par 130 also established a new tournament record, topping the mark of 132 originally set by Paul Lawrie in 2002 and equaled by Ian Poulter in 2003.
Paul Casey, the highest ranked played in the field at No. 30 in the World Rankings, carded a 9-under 63 and is alone in second place at 12-under-par 132.
Colin Montgomerie, who is not qualified for either the U.S. Open or British Open, shot a 4-under 68 and is tied for third with last year's Rookie of the Year on the European Tour Peter Lawrie, who posted a 64 on Friday. The duo is knotted at minus-9.
Kahn birdied his first four holes, then made a spectacular eagle at the par-5 fifth. He hit a poor drive and an indifferent 3-wood, but holed his pitch to go 6 under through his first five.
'I was 4 under after four with a par-5 to come. I didn't actually play the fifth too well, but that went in, suddenly I was 6 under after five,' said Kahn. 'After that I thought I mustn't stick here, tried to think I was level par after six and kick on from there as I would in any other round.'
He birdied the sixth then made his first par at No. 7. Kahn birdied eight and nine to put his name in the record book.
The second nine started similarly to the first as he knocked his approach to 15 feet at the 10th. Kahn missed the birdie putt, but sank an 8-footer for birdie at the 11th to go 10 under on his round.
He needed to hole a 12-foot par save at 12 to keep his magical hopes alive and he cooly rolled it home. Kahn had a 6-foot look for birdie at the 13th, but the flat stick let him down and he missed the putt.
Kahn parred the next four holes to put his 59 dream in trouble, but a birdie at the 17th meant he needed an eagle at the par-5 closing hole to shoot 59 on the number.
Kahn drove into the left rough at the 18th, but knocked his second just short of the putting surface. His pitch for eagle and more history ran 15 feet past the hole and he missed the birdie try to shoot 61.
'As the round went on I couldn't help but think of the 59, and after 11 holes, I felt there was a chance for it,' admitted Khan, whose best finish in 2004 was a tie for 13th at the Italian Open. 'But I feel fantastic and it is surprising how relaxed I was.'
Casey also played great golf on Friday, but not nearly as well as Kahn. Casey mixed nine birdies and nine pars in his round as he was reduced to playing catch-up to Kahn.
'My round was down to chasing Simon,' said Casey, who had a putt for 59 in college. 'It takes your mind off what you are shooting as you are just trying to chase their score and get your name on the leaderboard. His 61 is very, very impressive and at least he had a chip for a 59. Very few guys will ever have a chance for a 59 coming up the last and it would have been great if he had done it.'
Steve Jeppesen shot a 65 on Friday and is tied for fifth place with James Kingston, who posted a 6-under 66. The pair is knotted at 8-under-par 136.
David Carter (69), Christian Cevaer (70), Stephen Gallacher (66), Philip Golding (66) and Nick O'Hern (67) are tied for seventh place at 7-under-par 137.
First-round leader David Howell struggled to a 2-over 74 and is part of a group tied for 19th at minus-5.
Defending champion Ian Poulter carded a 3-under 69 and is in a logjam for 28th at 4-under-par 140.
The 36-hole cut fell at 1-under-par 143 and among the notable players who failed to make the weekend were: Nick Dougherty (144), Sandy Lyle (148) and Lee Westwood (150).