McIlroy put on a driving clinic for most of the day, his accuracy and prodigious length off the tee an impressive sight at Sheshan International.
The Northern Irishman carded a bogey-free five-under-par 67 that could have been considerably better had his putter been hotter, but his performance nevertheless was enough to move within striking distance of his fourth victory of the year.
A precise wedge for a tap-in birdie at the par-five 18th allowed McIlroy to inch ahead of Oosthuizen at 15-under 201.
"I think if I can go out tomorrow and play similar to how I did today, I should have a good chance to win," McIlroy said.
I probably played the best today that I've played all week. I drove the ball well, hitting my irons pretty good for the most part. I feel like I didn't quite get as much out of the round as I could have but I'm not going to complain.
"I'm in the lead going into tomorrow so I just need to rest up and try to get out there and play another good, solid round."
OOSTHUIZEN SHOOTS 65
South African Oosthuizen threw down the gauntlet with birdies at the first five holes en route to a 65, the day's best score in ideal conditions.
Oosthuizen, a runaway winner of the 2010 British Open and a playoff loser at the 2015 Open and 2012 Masters, was typically understated about his barnstorming performance.
"Sixty-five on Saturday is always nice," said the easy-going 37-year old who is just as much at home driving his tractor on his South African farm as driving a golf ball on the links.
"Played lovely, made nine birdies so I'm rolling the ball decent on the greens.
"Winning a world event would be a big achievement. I need to just go out and play some good golf."
But it was not just a two-horse race, not with American defending champion Xander Schauffele and English halfway leader Matthew Fitzpatrick lurking two shots from the lead.
Schauffele made his move with birdies at the final three holes for a 68, while Fitzpatrick fired a 70.
Home favourite Li Haotong gave his large gallery plenty to cheer about early with five birdies in the first six holes in a bold quest to challenge for the first Chinese victory at a World Golf Championships event.
But the party did not last as he came undone with an error-strewn stretch that included triple-bogey at the par-four 13th, where he knifed a bunker shot over the green into a hazard.
He shot 74 and fell nine shots behind.