Howell (68) leads the Karlsson (69) by one shot at 15-under-par. Frenchman Thomas Levet (67) is the next nearest competitor at 11-under.
Lee Westwood (67) is in a three-way tie for fourth place with Malcolm Mackenzie and Mathias Gronberg at 10-under-par.
Howell and Karlsson started the day tied for the lead at 11-under. By the time they reached the final hole, they were still deadlocked, this time at 15-under. However, Karlsson bunkered his approach shot and failed to save par.
Karlsson is in search of his second victory of the season (Spanish Open). Howell is seeking his first title since the 1999 Dubai Desert Classic.
I dont know if its between Robert and me now, but if I can shoot 68 again there is probably only Robert and one other who can touch me, Howell said. So its all down to me.
Added Karlsson: The worst thing that can happen to us tomorrow is that we start to play match play. Then it is easy for someone to come from behind. Both David and I must come out, play out own ball and shoot as low as we can.
Full-field scores from the British Masters