The former Celtic Manor Wales Open champion had a second consecutive 66 and, on eight under, led by one from Swede Oscar Floren, a graduate from last year's Challenge Tour.
Huldahl finished outside of the top 150 on last season's Race to Dubai, but has been making swing changes in the knowledge that his European Tour exemption runs out later this year.
"To be a more stable player I had to have a better swing," said the 28 year old, who made his move with four birdies in five holes from the turn before adding another from seven feet at the last.
Sweden's Peter Hedblom, German Florian Fritsch and five-time Japanese Tour winner Tetsuji Hiratsuka were tied for third on six under.
England's Anthony Wall, who narrowly failed to grab his first European Tour win for 11 years in Sicily on Monday, reached the same mark, but then slipped back to four under.
Tournament promoter Miguel Angel Jiménez was almost certain to miss the cut, but playing partners Hiratsuka and Alvaro Quiros still had title hopes.
Hiratsuka moved into second spot on seven under with a 67 and, by coming home in 29 for a 65, Omega Dubai Desert Classic winner Quiros was up to four under.
Wall's closing birdie lifted him back to five under, three shots behind Huldahl.
As the afternoon session unfolded Huldahl was joined on eight under by Dutchman Maarten Lafeber.
But they no longer held the outright lead, Rikard Karlberg moving to nine under with three to play when he pitched to eight feet at the par five 14th.