It means Ko is within touching distance of not only her 10th title, and fifth for the year, but also the world's No 1 ranking.
She would take the top spot with a victory and also could move up under other scenarios depending on where Inbee Park finishes. Park, who is in a share of 18th, eight shots behind Ko, replaced Ko atop the list in June with the first of her two major victories this year.
Ko began her round well, picking up a birdie on the opening hole and then three in a row in a blemish-free front nine. It saw her take a three-shot lead over South Korea's Mirim Lee.
But things weren't nearly as routine on the back nine. Back-to-back bogeys on the 11th and 12th and a double-bogey on the par-four 14th were countered by birdies on the 13th and 15th.
Sung Hyun Park, who carded an incredible 10-under 62 in her opening round only to back it up with a disappointing 74 in her second round, went five under for the day to draw level with Ko.
So Yeon Ryu had the low round of the day, shooting a six-under 66, which lifted her into a share of 26.