American Jim Johnson is alone in third at 8-under 208. He is followed by Japan's Sushi Ishigaki (69), Richard Green (68) of Australia and Korea's Charlie Wi (72) at 7-under.
Atwal earned his card after graduating from the European Tour Qualifying school last year. He has posted two career top-10 finishes on the tour, most recently a tie for ninth at the 2001 South African Open.
The 28-year-old began the round five shots behind overnight leader O'Hern but quickly gained ground with birdies at the second and fifth. He bogeyed the following par-4 sixth but countered with a birdie at the ninth to make the turn at minus-seven.
He then birdied the 11th and added back-to-back birdies from the 14th to move to 10-under before running into trouble with a bogey at the 17th. Atwal remained calm and rolled in a 15-footer for birdie at the last.
'I was pretty happy with the last hole,' he said. 'I read the line perfectly on the putt.'
Atwal was helped by O'Hern, who held the lead until back-to-back bogeys to close out the round dropped him into second place.
'I'm a little bit annoyed at the last couple of holes but not much I can do about it as I hit the putts I wanted and they just didn't go in,' said O'Hern, who set the new course-record at Laguna National Golf and Country Club Masters course with an eight-under 64 in the opening round. 'The good thing is that I am only one shot out of it. The main thing is to put myself in a position to have a chance on the last nine on Sunday and that is what I have done.'
O'Hern will play alongside Atwal in the final round. Atwal, a three-time winner on the Davidoff Tour, will be seeking his maiden victory on the European circuit.
'I've been playing well and just need to hang in there,' he said. 'I am not going to expect anything from tomorrow's round, just stick to my game plan and see what happens.'
Nick Faldo opened with a birdie at the par-5 second but struggled with two bogeys the rest of the way for a round of 73.
'I was way too tired today,' he said. 'I played all right but used up so much energy reading the greens and trying to get the ball in the hole it has worn me out. Tomorrow I need to come out and feel I have got something in the tank.'
The 44-year-old is joined by Spain's Carlos Rodiles (72) at 6-under 210.
Richard S. Johnson, last week's winner at the ANZ Championship in Australia, posted a 3-under 69 to finish at five-under 211. He is five shots off the lead alongside England's Chris Williams (73) and American Ted Purdy (73).
This tournament is co-sanctioned by the European and Davidoff Tours.
Full-field scores from the Singapore Masters