Leonard overcame a 1-down deficit with three holes remaining to defeat Gary Orr in 20 holes. And though top-seeded Els didn't need extra holes, he was taken to the 18th, topping Japan's Hidemichi Tanaka 1-up.
Meanwhile, third-seeded Vijay Singh wasn't as fortunate against his Japanese counterpart. The reigning Masters champion fell to Toru Taniguchi 1-up.
Only five of the top 16 seeds are remaining entering the Round of 16. Michael Campbell (5) and Tom Lehman (4) are among them. Campbell, who lost to Tiger Woods in the first round as the 64-seed a year ago, overwhelmed Toshi Izawa 5-and-4. Lehman had it a bit tougher, Thursday at the Metropolitan Golf Club, yet advanced with a 3-and-2 victory over fellow American Jeff Sluman.
On a day in which temperatures threatened 100 degrees in Melbourne, Australia, Leonard found himself in a precarious position at the par-4 16th. Down one, Leonard was so far left off the tee that the diminutive Texan was forced to play a back-handed shot with his putter just to get his ball back into the rough.
Orr appeared to be ready to go dormie-two, sitting nicely in the fairway. However, the Scotsman pulled his approach shot into the bunker, skulled his third shot across the green into another bunker, and then failed to get up-and-down.
Leonard won the hole with a bogey and pulled All Square with two holes to play.
With `Uncle Mo' on his side, Leonard also won the 17th to go 1-up. Then the tide turned in Orr's favor. Orr made a 15-foot putt on the last, while Leonard missed from six feet to force extra holes. One hole later, Leonard again missed a six-footer that would have won the match.
'I started to think it wasn't meant to be,' Leonard said.
However, Leonard's third-round ticket was punched when Orr bogeyed the 20th hole.
'It's hard to stay on your game for six rounds. I was pretty lucky,' said the 1997 British Open champion. 'I have to play a lot better the rest of the week if I want to continue.'
Leonard will now face Steve Stricker in the third round. Stricker, the 55th seed, defeated 23rd-seeded Scott Verplank 3-and-2.
As for Els, the South African found himself 3-down to Tanaka through four holes, before wrestling away a 1-up lead entering the 17th.
At the penultimate hole of regulation, Tanaka twice found the trees and had 75 feet for par and a possible halve.
He made it.
'I couldn't believe it,' Els said. 'Walking to the 18th tee, I thought maybe (Tanaka) was destined to win this golf tournament.'
Els eventually outlasted his opponent when Tanaka narrowly missed a 10-foot birdie putt that could have forced extra holes. Els will now face Jean Van de Velde. The Frenchman topped South African Retief Goosen 4-and-3.
Of the 16 remaining contestants vying for the $1 million first-place prize, Australian Nick O'Hern (63) is the lowest seed. The left-hander bettered Tim Herron 5-and-3 in the second round.
There are also six Americans still alive. Aside from the aforementioned, Brad Faxon is in contention after defeating Chris Perry 1-up, as is Dudley Hart, who proved victorious over local favorite Robert Allenby 5-and-4.
In the most decisive match of the day, 57th-seeded Craig Stadler crushed Australian Craig Parry 7-and-6.
Parry's loss leaves O'Hern and Stuart Appleby as the only Australians remaining in the draw. Appleby defeated Per-Ulrik Johansson 4-and-3 to advance into the third round.
In the biggest upset thus far of the tournament, little-known Taniguchi built a 4-up lead at the turn, and then hung on for a 1-up victory over third-seeded Singh. This is the third consecutive year that the Fijian has failed to advance past the second round.
Singh leaves with $50,000. All third-round participants are guaranteed at least $100,000.
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