Lee ended 36 holes at Wildfire Golf Club at JW Marriott Phoenix Desert Ridge Resort & Spa at 15-under 129, while first-round leader Ai Miyazato followed her record-tying opening round with a 5-under 67 to sit a stroke back at 14- under.
Miyazato carded a 9-under 63 on Thursday to tie a tournament record and career-low round.
Stacy Lewis finished with a 7-under 65 on Friday to take sole possession of third place at minus-11. Lewis has a chance to take the world No. 1 ranking with a win this week coupled with a third place or worse finish by current No. 1 Yani Tseng (72), who sits in a group tied for 60th place at 2-under.
"It's definitely on my mind, you kind of look at what Na Yeon [Choi] and Yani are doing and kind of pay attention to it," Lewis said about possibly overtaking Tseng. "But then you've got Ai going crazy the last two days, so there's so much out of your control that you can't control that I've just got to take care of myself."
Danielle Kang (67), Amy Yang (67), Lindsey Wright (67), Candie Kung (69) and Gerina Piller (69) share third place at 9-under 135.
Miyazato hit the course in one of the groups before Lee and quickly pulled further away with back-to-back birdies on the 11th and 12th, which were her second and third holes.
Another birdie at the 16th moved her to 12-under before she stumbled to her first bogey of the tournament at the 18th.
However, she recovered with three birdies in a four-hole stretch starting at the second to move to minus-14.
She then traded two birdies and a pair of bogeys over her final four holes to head into the clubhouse with the lead.
"Well, it's not easy to be calm all day, but I just worked hard on just trying to control myself really well out there," said Miyazato. "Like I said, I'm just happy to be here and playing in the tournament again and just very thankful for all that. So that's why I think I felt really calm out there. Of course I'm playing good, too, but I enjoy playing golf right now, so just make it simple."
Lee, meanwhile, opened her second round with four straight pars before snapping the streak by rolling in a birdie at the fifth.
After another par at the sixth, Lee caught fire with four straight birdies from the seventh to move into striking distance of Miyazato at 12-under.
She followed that with four consecutive pars before back-to-back birdies at the 15th and 16th moved her into a tie with Miyazato at the top of the leaderboard.
Lee then closed out her round with a birdie at the last to take a 1-stroke lead into the weekend.
"I really want to win this week," Lee said. "But two days more, two days left, so I'm going to try to keep being more confident and patient."
NOTES: Tseng could also be overtaken in the rankings this week by Na Yeon Choi, who carded an even-par 72 on Friday to sit at 3-under for the tournament. Choi can replace Tseng at No. 1 with a first-place finish and Tseng finishes fourth or worse ... Kim Welch hit a hole-in-one at the par-3 14th. Jennifer Gleason aced the same hole on Thursday ... Lee's last LPGA win was the CJ Nine Bridges Classic in 2005 ... The cut line was set at 2-under- par 142, with 73 players advancing to the weekend.