Holland's Maarten Lafeber had the low round of the day with an 8-under 64. He came back from a 74 in the opening round to finish alongside France's Benoit Teilleria and Didier De Vooght of Belgium at 6-under 138.
Florioli began his round four shots off the lead and played the back nine first at Santo da Serra Golf Club. He followed a birdie at the 11th with a bogey at No. 12, but added birdies at the 14th and 16th to make the turn at minus-four.
The 30-year-old caught fire on the inward nine with three consecutive birdies from the first. He added another at the fifth and closed out his round with a birdie at the par-4 ninth to climb to 9-under and take a commanding three-shot lead into the clubhouse.
'My short game was very good today, and that is very important on a course like this,' said Florioli, who finished 79th at last year's Qualifying School. 'I put in a lot of hard work during the winter and now the work is paying off.'
Oldcorn also started on the back nine and birdied four of the first five holes. He three-putted for bogey at the 18th to make the turn at 5-under but made up for it with a birdie at the second.
He birdied the fifth to climb to 7-under and tied Florioli with birdies at the seventh and ninth.
Oldcorn, a three-time winner on the European Tour, has never posted a top-10 finish in four appearances at Madeira. His best was a tie for 15th last year.
Florioli, however, has enjoyed most of his limited success on tour at this event. He carried the lead into the final round last year but struggled to a closing 1-over 73 to finish third behind eventual champion Des Smyth.
His 65 Friday matched his career best, originally set in the third round of this event last year.
A pair of Spaniards in Santiago Luna and Ivo Giner finished tied for seventh at five-under 139. They were joined by England's David Lynn.
American Charlie Hoffman, Spain's Diego Borrego, David Drysdale of Scotland, France's Christophe Pottier and John Bickerton of England were at 4-under 140.
Seve Ballesteros, who fired a 2-under 70 Thursday, produced an up-and-down second-round 76 made up of five birdies, seven bogeys and a double-bogey. He did manage to make his first cut in three starts this season.
The cut fell at 4-over 148. Among those who failed to qualify for the weekend were 19-year-old Nick Dougherty and two-time Madeira Island Open winner Mats Lanner.
Full-field scores from the Madeira Island Open