The Swede managed two eagles and five birdies in an effort which saw her move to 11-under for the tournament and move past overnight leader Suzann Pettersen after the Norwegian followed up her opening round 66 with a 68.
Australian young-gun Minjee Lee sits at nine-under after shooting an impressive round of 67 with Holly Clyburn, Lydia Ko and Anna Nordqvist a further shot back in a tie for fourth.
In what is a packed leaderboard, a group of five players made up of Paula Creamer, Karine Icher, Jessica Korda, Morgan Pressel and Jing Yan are all locked in a share of seventh at seven-under.
But despite the tightly contested nature of the tournament, it was Hedwall who stole the headlines on Friday after her extraordinary round.
She started the day with a birdie on the first hole and did not look back from there, nailing two more birdies and an eagle on the back nine before following that up with two more birdies and an ace on the 16th which catapulted her into the lead.
It was Hedwall's fourth hole-in-one and the 24-year-old is now in prime position to claim what would be the ninth tournament win in her professional career.
Hole-in-one sees Caroline Hedwall hit the lead
