Gary Orr fired an 8-under 64 in the second round to move into a share of second place at minus-13. He was joined there by first-round leader Lee Westwood (68) and European Ryder Cup captain Ian Woosnam (66).
World No. 5 Retief Goosen and Charl Schwartzel are tied for fifth place at 12-under-par 132.
Karlsson got off to a hot start at Gut Kaden Golf Club as he birdied the first three holes to get to 11 under. His birdie run ended on the fourth where he tripped to a bogey.
The Swede recovered that lost stroke thanks to a birdie on the par-5 sixth. He parred four straight around the turn.
Karlsson, who claimed his sixth tour win earlier this year at the Wales Open, sank a birdie putt on the 10th to get within one of the lead.
He grabbed a share of the lead with a birdie on 12. Karlsson birdied the par-5 17th to move into first place by himself.
'I am playing well just now. In fact, I've played well for a couple of months,' said Karlsson. 'I'm enjoying it out there and feeling pretty calm and relaxed. The weather is so good here and the course is set up quite friendly. You just have to go out and play.'
Orr played the back nine first and wrapped birdies on 11 and 13 around a bogey on 12. He collected birdies on 15 and 17 to make the turn at minus-8.
The Scotsman converted back-to-back birdies from the second and again from the sixth to jump to 12 under. Orr got within one of the lead as he birdied the ninth for the second straight round.
'I didn't play as well as I can in France or Loch Lomond, so I saw my coach up in Scotland and he pointed out a couple of things,' Orr admitted. 'I worked them out last week and started hitting the ball better almost right away, so that was a big relief.'
Westwood flew up the leaderboard with birdies on four of his first six holes. However, the Englishman parred his final 12 holes to end at 13 under.
Woosnam started on the back nine Friday and got going with a birdie on the 11th. He also birdied the 16th to make the turn at 9 under.
The Welshman, whose last tour win came at the 1997 Volvo PGA Championship, caught fire on the front nine. Woosnam drained a birdie putt on the second and came right back to birdie No. 3.
Woosnam birdied the fourth as well, as he birdied those three holes each for the second straight day. He made it four straight on Friday as he also birdied the par-3 fifth to get to 13 under. The 48-year-old parred his last four holes to end one back.
'It's the best I've played for a long time most probably, the most consistently I've played for a long time I would say,' Woosnam said. 'You know, I play well, but the putting has been so bad, and I think that puts a lot of pressure on me. I tend to hit bad shots when I'm trying to hit the ball close all the times.'
Christian L. Nilsson and Luke Donald each shot 6-under 66 to join Padraig Harrington (65) in seventh place at 11-under-par 133. Defending champion Niclas Fasth and Garry Houston are one shot further back at minus-10.
The cut line fell at 4-under-par 140 with 71 players moving on to the weekend. Among the notables missing the cut were Order of Merit leader David Howell, Spaniard Miguel Angel Jimenez and American John Daly.