The 34-year-old South African, a former teammate of John Daly while at the University of Arkansas, joined PGA Tour winners Duffy Waldorf and Kirk Triplett atop a jam-packed leaderboard at 19-under-par 197.
Australia's John Senden, the leader after 36 holes, shot 69 for a share of 18-under with Cameron Beckman (64), Jerry Kelly (65) and Brandel Chamblee (68).
Jay Haas, who opened with a 63 to tie for the first-round lead with Chamblee, finished alone in eighth place at 17-under. The 1988 Bob Hope winner posted his second straight 68.
Eighteen other players were within five shots of the lead.
Pappas tallied 10 birdies and a bogey during his round at Bermuda Dunes Country Club, one of the four courses in the rotation this week. He is slated to play the Palmer Course at PGA West on Saturday.
'If you're hitting it good, you can shoot a low number out there, too,' said Pappas, who has been within striking distance ever since holing a 6-iron for double-eagle at Indian Wells Country Club's par-5 18th in the first round.
A member of the PGA Tour in 1999, Pappas made the cut in 11 of 29 events, with his best showing a tie for 12th at the B.C. Open. He shot what was then his low round of 66 in the third round of the Greater Milwaukee Open that year, and a month later matched the score in the second round of the Buick Open.
After playing on the Buy.Com Tour from 1996-98, he began a second stint on the PGA Tour's developmental circuit in 2000 and won the Greater Cleveland Open. He returned the following season to capture the Monterrey Open, the second event of the campaign, propelling him to a fifth-place finish on the 2001 money list and another shot at the big leagues.
Pappas, who led the Buy.Com Tour in putting in 2001, felt his problems with the flat stick held him back on the PGA Tour in '99.
'I really struggled with my putting the first time I was out,' he said. 'I didn't make any putts the whole yearlong, and it's just a huge struggle all year long if you're not making any putts at all.'
Pappas has averaged 28 putts per round this week.
Waldorf, who only committed to this tournament late last week after missing the cut at the Sony Open in Hawaii, had eight birdies in a bogey-free 64. Triplett, donning his trademark white bucket hat, also was flawless en route to an 8-under-par score in round three.
Kelly, whose win at last week's Sony Open marked his first in 200 career starts on the PGA Tour, had it to 19-under Friday after knocking his wedge approach into the hole for eagle at the par-4 seventh at Tamarisk Country Club. He bogeyed his final hole, the ninth, to slip one stroke off the pace.
World No. 2 Phil Mickelson was one of just five players in the top 35 not to break into the 60s on Friday. He recorded a five-birdie, three-bogey 70 to finish alongside Daly (65), Scott McCarron (68), Kenny Perry (68) and four others at minus 15.
The field will be cut down to the low 70 scores and ties following Saturday's fourth round. The final round will be played at PGA West.