Garcia made an up-and-down out of a bunker at the final hole Saturday for what he thought was a 68 and a two-shot lead over the 19-year-old Aussie. However, Garcia was informed afterward that he was assessed a two-stroke penalty for an incorrect drop at the first hole at The Lakes Golf Club.
Garcia was told of the infraction by the European Tour's chief referee John Paramor, who was later asked if the 21-year-old Spaniard was happy with the decision to change his score to a 70.
'I haven't really found a player yet who is happy about getting a two-shot penalty,' Paramor said. 'There has never been one who said, `Thanks very much.''
'Of course, I am angry,' said Garcia, who took a drop to get line-of-sight relief from an advertising sign after an errant tee shot at the opening hole. 'I was leading by two and now I'm tied for the lead. That's okay. I'm playing well. Hopefully, even with John Paramor's rules and everything I will be able to win the tournament.'
Garcia was asked by Greg Norman, his playing partner and the tournament host, if he wanted to get an official to give a ruling on the drop. When Garcia said no, Norman looked at the situation and said that he felt the drop was legal.
'I personally feel bad because he asked me for a ruling,' said Norman, who at 14-under is just two shots out of the lead. 'I gave him a ruling the way I thought the ruling reads. Thank God he wasn't disqualified.'
Norman said that according to Paramor, Garcia would have been disqualified had the drop blatantly improved his subsequent shot.
'The onus goes on the players,' Norman admitted. 'We really should know the rules of golf. We're professionals. At the end of the day it is the individual's responsibility, nobody else's.'
The penalty marred what has been an otherwise sensational tournament for Garcia, whose only other blemish this week was a bogey in the second round. His round on Saturday was still a solid one, fueled by four birdies over a five-hole stretch from the eighth to the 12th hole.
Baddeley will tee off in the final group with Garcia on Sunday after posting his second straight round of 5-under 68.
'You had to have patience out there today,' said Baddeley, the winner of the last two Australian Opens. 'The wind was blowing and then the rain started. I was patient all the way through. I tried to hit good shots, smart shots.'
The young Aussie tallied a birdie at the par-3 15th, and two holes later notched another after hitting a 50-yard bunker shot close at the 17th green.
'I thought if I hit a full bunker shot it would get up into wind,' he said. 'I tried to hit it like a pitch shot and bounce and run it up there. I hit an absolute gem.'
England's Ian Poulter turned in the round of the day, firing an 8-under 65 for solo third at 15-under 204.
'The round I played today, I can't really play much better than that,' said Poulter, whose card was bogey-free on Saturday. 'I started with five birdies in the first seven and had a very makeable chance on three.'
Poulter, who added three more birdies on the homeward nine, was asked to rate his chances for finishing on top on Sunday.
'If I play the way I did today, I can't see any problem,' he said.
Norman celebrated his 46th birthday Saturday with a somewhat disappointing 71. He made it to 15-under with three birdies over the first 11 holes, only to find the water at 14 and three-putt at 16 for bogeys.
He recovered one of the lost strokes at 17, rolling a 15-footer into the heart of the cup for a birdie. Then like Garcia, Norman found the right bunker at the par-3 closing hole and shadowed the Spaniard with a sand shot out to 10 feet followed by a par-saving putt.
Win or lose Sunday, Peter Lonard will be able to drive away from the tournament behind the wheel of a new car. The Sydney native used a 4-iron to ace the 195-yard 18th, negating with one swing bogeys at the 15th and 17th. He finished with a 66, and after 54 holes is tied with fellow Aussie Jarrod Moseley for fifth place at 13-under.
Moseley capped off his round in less auspicious fashion. The Perth resident bogeyed the last and had to settle for his 66.
Craig Parry is five shots off the pace at 11-under, while Scott Gardiner, David Bransdon, Peter Baker, Steve Alker, Phillip Price and Pierre Fulke round out the top-10 at 10-under.
Click here for Full-Field scores from the Greg Norman Holden International!