Lee added a 65 to her opening 64 for a halfway total of 13 under par, a stroke ahead of American Lexi Thompson, who returned an eight-under 63 that included seven birdies, an eagle and one bogey.
Shanshan Feng, who won last week's inaugural Reignwood Classic with an eagle on the 72nd hole, is in outright third on 10 under after rounds of 67 and 65, with American Paula Creamer and South Korea's IK Kim another stroke back.
Lee covered the front nine in 30 with five birdies and led by as many as four shots at one stage, but Thompson stormed home in the same number of strokes with four birdies and an eagle in the space of five holes.
"I tried to do exactly the same thing as yesterday so my goal was three under par today," Lee said. "Then I putted good and made more, so it was fun."
Thompson, who finished third in the Evian Championship before a three-week break at home in Florida, said: "It was all about momentum. On the back nine I made a few birdies and then I had that eagle, so I pretty much just had it going my way.
"I just tried to keep confident out there and focused on one shot at a time."
South Korea's Amy Yang is five shots off the lead after a course-record 62 - 10 shots better than her opening round - but defending champion and world number one Inbee Park could only manage a 71 to drop into a tie for 39th at one under.