Lahiri, a five-time winner on Asian Tour, looking for a breakthrough win on the European Tour, shot 10-under-par 62 with six birdies on the front nine and four on the back stretch to get to 12-under and five shots behind third round leader Bernd Wiesberger of Austria.
Wiesberger himself shot nine-under 63.
Lahiri, who at one stage was at the second position, ended round three on fifth spot.
The Indian, who finished second on the 2014 Asian Tour Order of Merit, fired 10 birdies that included a classy outward 30 to establish the low round at the Kuala Lumpur Golf and Country Club's West Course since it reopened from a major refurbishment in 2008.
Even as Lahiri shot a 62, his colleague SSP Chowrasia bouncing back from a first round 76 added a 68 to the 67 he shot on second day to get into top-20.
Shiv Kapur (74) was tied 53rd, down from overnight tied 29th, while Rashid Khan shot a third successive 73 and is now tied 66th.
Lahiri opened with a birdie and then after a par on second had a run of four successive birdies. Another birdie on ninth saw him turn in 30 and then he added four more on 10th, 13th, 14th and 16th.
Chowrasia had four birdies and no bogeys with birdies on first and eighth and then 16th and 17th. Lahiri, who began the day nine behind the leader, said he came out swinging freely on a steamy day.
"Last couple of days, I was trying too hard to make birdies, trying to make a move. I just let go today. When I saw a line, I just hit it on the line and took it on merit whether it went in or missed," said Lahiri, whose career's low round was a 61 in Macau last year.
"This changes the situation in terms of where I stand. But in terms of what I need to do, it'll be the same thing. I think the hall mark today was that I stayed bogey free because the first two days I made 11 birdies and dropped nine shots," he explained.