Anthony Painter, the leader after round one, managed a 1-over 72 to join Matthew Ecob and Mathew Goggin in a tie for second at 5-under-par 208.
Walters began the day two shots off the lead in a tie for fifth and found trouble early on Saturday with back-to-back bogeys starting at the par-4 second.
The Australian responded with a birdie at the par-4 fifth and returned to minus-5 with a birdie at the par-3 seventh. Walters then birdied the par-5 ninth to make the turn at 6 under.
Walters stumbled to a bogey at the par-4 13th but managed to keep pace with his competitors.
He closed his round with a birdie at the par-4 18th to secure the outright lead with one round to play.
Goggin bogeyed the third but managed to respond with three birdies over his next four holes
The 29-year-old dropped another shot with a bogey at the eighth but recovered quickly with an eagle at the very next hole.
Goggin added three birdies and a bogey on the inward half for a round of 66.
'For the last couple of years I haven't really had that feeling,' said Goggin, a two-time winner on the Nationwide Tour. 'It will be nice to get out there amongst it again, no matter what happens.'
Painter moved to the top of the leaderboard on Saturday with three birdies and a bogey over his first nine holes.
The 38-year-old faltered with a bogey at the 10th but tallied a birdie at the 13th to move to 8 under par.
Painter struggled over the closing holes, however, with three consecutive bogeys from the 15th to finish one shot off the lead.
Adam Groom, who held the lead after the second round, collected two birdies and five bogeys for a round of 74.
Groom was joined by Wayne Grady, Brendan Jones and Jens Nilsson in a tie for fifth at 4-under-par 209.
Scott Gutschewski, Wayne Perske and Martin Doyle were one shot further back at 3-under-par 210.