The two time European Tour winner was 49th in the Official World Golf Ranking during this week in 2019 but has slid down to 960th coming into this event at Fairmont St Andrews.
But the Dane, who turns 30 next week, turned the formbook on its head as he set a new course record of 62 to move two shots clear of home favourite Calum Hill at 15 under par.
Bjerregaard rolled in 11 birdies - including six in a row and a par to finish his round - and one bogey to go one shot better than the lowest mark set by Hill on Thursday.
"My putter might be the most valuable thing in Scotland right now," Bjerregaard said. "I’ve never putted like that and I’m not sure I’ve seen anyone putt like that. That was pretty special, I’m a happy man right now.
"I guess I got lucky and missed in the correct spots and managed to hit some good iron shots out of there and putted well. It was definitely the putter. I think I had about 20 putts today - that helps.
"It’s amazing. I’m going to enjoy that tonight. It’s been a long time since I’ve been here. It’ll be nice to be on that side coming into the weekend."
There was a delay of three hours and 20 minutes due to poor weather but Walters made his move up the leaderboard courtesy of an eagle at the third.
The 40-year-old added birdies at the sixth and eighth but when he dialled in his approach to seven feet at the next and holed the putt for a gain, he was the joint leader with Hill at nine under par.
Berry Henson, starting on the back nine, eagled the 12th but instantly gave back the two shots with a double bogey at the next - his only dropped shots of the tournament so far.
Henson birdied the 15th, 17th and 18th before he made it a three way tie at the top when he holed out from nine feet at the fourth but Walters nudged ahead on his own after sticking his approach inside five feet at the 12th.
As Walters drained his short birdie putt, Henson matched him at ten under with a tap-in birdie at the sixth and the 42-year-old American found himself alone at the top when Walters bogeyed the 14th hole.
Walters responded immediately with a birdie at the next after another superb iron shot and he became the first player to get to 11 under courtesy of a monster 65 foot putt at the 16th.
The South African set the clubhouse lead at 12 under with his seventh birdie of the day at the last but the chasing pack closed in.
Hill continued his bid to become the first home winner in Scotland on the European Tour since Paul Lawrie won the 2012 Johnnie Walker Championship at Gleneagles with a gain at the sixth to get to ten under.
Henson and Tarrio, who birdied the sixth, seventh, ninth, 12th and 13th, were both at that mark before Scotland's David Law finished his final four holes of the front nine in five under to make it a four way tie in second.
But Bjerregaard, who began the day at five under, surged up the leaderboard after a hat-trick of gains from the the 12th to get to eight under.
A bogey at the 15th stalled his momentum but when the Dane had a birdie-birdie finish to his front nine to get to nine under, he was only getting warmed up.
Hill picked up shots at the 12th and 15th to become joint leader with Walters, but Bjerregaard's putter got hot as he drained putts from ten, 16 and 13 feet at the third, fourth and fifth to also climb to the summit at 12 under.
But he did not stop there. A fourth birdie in a row saw him take the outright lead, only for Hill to match him at the last to set the new clubhouse target at 13 under.
Bjerregaard's hot streak continued at the seventh from five feet to regain the lead and he extended his advantage to two shots thanks to a monster 69 foot putt at 17th for his sixth successive gain.
Tarrio birdied the 15th and the last to sit alongside Walters at 12 under, while Jordan overcame an early bogey to card a six under 66 to join Sciot-Siegrist, who carded a blemish free 68, at 11 under.
Sihwan Kim and Chase Hanna, who will play six holes of his second round on Saturday, made it three Americans at ten under par with Henson, with Law, Northern Ireland's Jonathan Caldwell and Indian Shubhankar Sharma also at that mark.