Markus Brier posted a 67 to finish two shots off the pace at 7-under-par 203. Spain's Carlos Rodiles followed at 6-under-par 204, while fellow countrymen Santiago Luna and Gonzalo Fernandez-Castano shared fifth place at 5-under-par 205.
Garcia, who is looking for his second European Tour title in his native country, found trouble early in round three at Pula Golf Club with a bogey at the par-3 second. He was able to respond quickly, however, with a birdie at the par-4 fourth and a birdie at the par-5 sixth to move to 8 under.
The 24-year-old tallied a string of pars around the turn until a birdie at the par-3 13th lifted him to minus-9. He then reached 10 under with a birdie at the par-4 17th, but a bogey at the last robbed him of the outright lead.
'It was a really difficult day,' said Garcia, a four-time winner on the European Tour. 'The wind was blowing really hard at times and it was definitely good to get it going a little bit with a few birdies.'
Khan earned his first European Tour title earlier this year in Wales, and the Englishman is eager to show that his victory at Celtic Manor was no fluke. Khan stood atop the leaderboard heading into the weekend and maintained his control early with a birdie at the par-4 third.
Things started to come apart for Khan, however, and he stumbled to bogeys at the fifth and the 10th.
Khan countered with back-to-back birdies starting at the par-4 12th to jump to 11 under, but he faltered again with a dropped shot at the 14th.
The 32-year-old wasn't out of the woods yet and picked up a bogey down the stretch at the 17th to complete a round of 71.
Francois Delamontagne carded a 71 to finish alone in seventh place at 3-under-par 207. Former Open champion Paul Lawrie was one shot further back at 2-under-par 208 along with Darren Fichardt, Mark Roe, Alastair Forsyth and last week's winner Stephen Gallacher.