The 41-year-old carded a flawless five-under-par 66 at Royal Selangor in Kuala Lumpur to sit joint-seventh on seven-under.
It was Gallacher’s best effort since he opened with a 65 in the KLM Open last September.
He sits six shots behind leader Soomin Lee after the Korean leapt into top shot with a blistering 64.
“It’s good to be back in contention again going into Sunday,” admitted Gallacher as he savoured a welcome return to form after suffering a frustrating 2015 campaign then starting the year with three missed cuts on the Desert Swing.
“That’s all you can ask at the start of the week and hopefully I can go low tomorrow and see what happens.
“I’m certainly feeling much happier about my game and this is a great course, too.”
Lee, 22, only turned professional in 2014 and has made just 12 appearances on the Asian Tour, but will now face the biggest round of his fledgling career so far.
He finished in a tie for third at the UBS Hong Kong Open in October, and once again proved he is very comfortable in this elite company as a stunning burst of birdies after the turn propelled him to a seven under par round.
That moved him to 15 under for the week, three shots clear of Marcus Fraser, who carded a blemish-free 66.
“It was very exciting,” said Lee. “I had a good feeling this week because I like playing on this course.”
Fraser’s fellow Australian, overnight leader Nathan Holman, dropped to third on 11 under after a 73 which included a triple bogey on the last hole.
Spaniard Jorge Campillo, Japan’s Masahiro Kawamura and Filipino Miguel Tabuena are all five shots off the lead in a share of fourth.
Thai-based Scot Simon Yates sits 68th on three-over after a 75.