'I'm ecstatic. It's great to be out here in the second round and actually be in contention in one of Australia's major events,' said Nitties. 'Today was just the day for me. Hopefully I can keep playing well tomorrow.'
Peter Lonard, who won the Australian Open last week, carded a 65 of his own to finish alone in third place at 10-under-par 134. Craig Parry and Peter O'Malley followed at 9-under-par 135.
Nitties played the back side first at Hyatt Coolum Resort and ran off back-to-back birdies from the 11th to get his round going. Nitties then birdied the par-4 16th to reach 8 under.
The 22-year-old, who is competing in his fourth event as a professional, collected a birdie at the second and made it two in a row with a birdie at the third. Nitties added back-to-back birdies starting at the seventh to take the outright lead heading into the weekend.
'I am putting really well at the moment and if you are putting well you pretty much hit it at the hole,' said Nitties. 'I became really comfortable and started hitting good shots.'
Estes, who held the opening-round lead after he matched the course record on Thursday, tallied a pair of birdies over his first nine holes and picked up a birdie at the 12th to move to 12 under.
The American found trouble with a bogey at the par-5 15th, however, to finish one back after a round of 70.
Defending champion Peter Senior joined Craig Spence, John Senden, Dean Alaban and Wayne Perske in a tie for sixth place at 8-under-par 136. Corey Pavin, Stephen Leaney and Nick O'Hern followed at 7-under-par 137.
Greg Norman managed a round of 72 to finish eight shots back in a group at 4-under-par 140.