Ricardo Gonzalez posted a 66 to finish one shot further back at 8-under-par 136 along with Raul Ballesteros and Emanuele Canonica.
Monasterio, who took to the course at Real Club de Golf de Sevilla in the morning before the wind picked up in the afternoon, played the back nine first and stumbled out of the gate with a bogey at the 10th.
He countered with back-to-back birdies from the 13th but found trouble again with a bogey at the 15th.
Monasterio recovered quickly with a birdie at the very next hole to move to minus-5 before catching fire around the turn.
The 40-year-old ran off three consecutive birdies starting at the par-4 18th to make his move up the leaderboard.
Monasterio then birdied the fourth and reached the green in two at the par-5 fifth. He was left with 12 feet for an eagle, but sent his putt right of the hole. Monasterio converted the birdie putt coming back to reach 10 under but dropped a shot at the seventh to hold a slim lead heading into the weekend.
Gonzalez, who has a pair of European Tour victories to his name, held the lead at one point before giving way to his fellow countryman Monasterio.
The 34-year-old also started on the 10th and collected four birdies over his first nine holes to make the turn at 6 under for the championship.
Gonzalez dropped his tee shot inside seven feet for a birdie at the par-3 third and played his approach within five feet for a birdie at the par-4 fourth.
At the par-5 fifth, Gonzalez found a greenside bunker with his second shot but blasted his third from the sand to two feet for a tap-in birdie to reach minus-9.
Gonzalez then found a bunker off the tee at the seventh en route to a bogey to finish one shot back.
Ballesteros, the nephew of legendary Seve Ballesteros, tallied six birdies and two bogeys for his second straight round of 68.
'I have the privilege of having Seve as my uncle and I have learned things from him but my future has nothing to do with Seve,' said the 23-year-old Ballesteros. 'I am a different person, he has been the best player in the world. I am apart from that.'
Matthew Blackey carded a 4-under 68 to finish two shots off the pace at 7-under-par 137. Soren Kjeldsen, Simon Khan, Kenneth Ferrie, Stephen Gallacher and Alan McLean followed at 6-under-par 138.
The 36-hole cut fell at 1-over-par 145 with 82 players qualifying for the final two rounds. Among those who will miss the weekend were Ignacio Garrido and Jarmo Sandelin.