The 25-year-old American made six birdies against a lone bogey to stand on 19-under 197 after 54 holes at Columbia Edgewater Country Club in Oregon.
"Had a really solid day. Just played really steady golf. Managed to get some putts to drop on the front nine," Lee said. "The pin locations on the back were a little trickier. Just tried to stay really patient. Finished the day pretty well."
Dutch 36-hole leader Dewi Weber and US 19-year-old Alex Pano shared second on 198 with Germany's Polly Mack and American Angel Yin sharing fourth on 199.
Lee captured her only LPGA title in 2022 at Portland, edging Ecuador's Daniela Darquea by a stroke, and had her best major finish with a share of third at the US Women's Open in June.
"I really want that second win, so hopefully the putts will fall my tomorrow," Lee said. "It would mean a lot."
Lee opened with a bogey but answered with a birdie at the third then reeled off birdies at the par-5 fifth, par-4 sixth and par-5 seventh. Lee closed the front nine with another birdie, added another at the par-5 12th and parred to the clubhouse from there.
"You just got to stay really patient out there and know that putts are going to eventually fall my way even if they don't maybe the first few holes," Lee said. "You never know what can happen out here. Someone could go on a run or get cold. It's just staying within yourself."
Pano, who won her first LPGA title last August at the ISPS Handa World Invitational in Northern Ireland, had back-to-back bogeys at the second and third followed by five birdies in a row from the fourth through eighth holes. She also answered a bogey at the par-3 16th with a birdie at 17.
"I had a few errant swings in the round but never lost my focus and just got back on track right afterwards," Pano said. "I'm pretty happy with how I recovered every time I made a bad swing."
Weber, seeking her first LPGA title, was denied an Olympic berth after meeting International Golf Federation (IGF) and International Olympic Committee (IOC) qualifying standards for Paris.
The Netherlands Olympic Committee has its own standards requiring athletes to have a "realistic chance" to finish in the top eight in order to be sent to the Olympics, a level Weber didn't reach.
After making seven consecutive birdies each of the first two rounds, Weber couldn't make two in a row in round three, grinding out a 70 thanks to a chip-in birdie from the left rough at the par-4 17th.
