Kim Saiki fired a 7-under 65 to join Janice Moodie in a tie for second at 7-under-par 137.
Mallon was two shots behind Emilee Klein to start the day at Berkleigh Country Club and jumped out of the gate with a birdie at the par-4 first.
The 40-year-old then picked up back-to-back birdies starting at the par-4 fourth and added a birdie at the seventh to move to 8 under.
At the par-4 ninth, Mallon hit her approach to 20 feet and drained the putt to make the turn in 30.
Mallon continued her solid play with a birdie at the 11th but found trouble with a bogey at the very next hole.
She kept racking up the pars on the back nine until her second shot at the par-5 18th found a bunker to the right of the putting surface. Mallon blasted out of the sand to two feet and tapped in for the closing birdie to hold a comfortable lead heading into the weekend.
'I just really enjoy the course,' said Mallon. 'You have to pay attention and that is better for me. It's a good strategy course, you are never hitting the same clubs off tees. I putted really well for two days and I haven't done that for two consecutive days this year.'
Moodie played the back nine first and started quickly with a birdie at the 11th. She then birdied 13 and 14 and hit her tee shot to eight feet at the par-3 15th.
The 30-year-old from Scotland converted the putt and made it four in a row with a birdie at the 16th. Moodie stumbled with a bogey at the 17th but countered with a birdie at 18 to make the turn at minus-8.
Moodie kept the pressure on Mallon with a birdie at the first but she found trouble down the stretch with a bogey at the fifth and a double bogey at the sixth.
Moodie recovered what she could with a birdie at the ninth to join Saiki in a tie for second.
Beth Daniel posted a 69 to join Candie Kung at 6-under-par 138. Heather Bowie and Dawn Coe-Jones were one shot further back at 5-under-par 139.
Klein struggled in the second round with a 74 to fall six shots off the lead. She was joined by Nicole Dalkas, Kim Williams, Pamela Kerrigan, Sunny Lee and Carin Koch.
Defending champion Se Ri Pak was one shot further back in a group at 3-under-par 141.
The 36-hole cut fell at 3-over-par 147 with 76 players qualifying for the weekend.