Despite hitting 16 of 18 greens, Australia's world No.4 could only manage a one-under-par 71 on Friday to slip from a tie for second to joint-eighth at eight under for the championship.
Lee offered a wry smile after finally draining her first birdie of the day at the last hole following a run of 17 consecutive pars.
At eight under, the three-time major champion will enter the weekend five shots behind Japanese leader Minami Katsu.
Katsu surged to the top of the leaderboard with a spectacular 12-birdie, 11-under round of 61.
"Yeah, it was pretty flawless round. Couple of luckies, I think, but really good round overall," the 27-year-old said.
The course record vaulted Katsu two shots clear of South Korean Ina Yoon (68) at 13 under.
Americans Lindy Duncan (68) and Jenny Bae, who triple-bogeyed the last for a 69, share third at 10 under.
With a second-round 70, world No.1 Jeeno Thitikul is lurking ominously one stroke further back in a tie for fifth with fellow Thai Arpichaya Yubol (71) and Korean Somi Lee (67).
Also in a battle for player-of-the-year honours, Thitikul and Lee still shape as favourites to lift the trophy on Sunday as the countdown continues to next month's season-ending Tour Championship in Florida.
"I'm really not focusing on winning. I'm just trying to think very simple," Katsu said.Â
"If you think too much about the winning, I think it's not going to end up in a good result.
"I think about trying to enjoy golf, my game, and hopefully I get a good result at the end."
12°C