Otto trailed by one stroke overnight after an opening-round 67 but took his game to a new level on Friday as he carded six birdies on the outward nine.
An eagle on the 12th followed by birdie on at the next hole had the 38-year-old on course for a rare sub-60 round, but a bogey at the penultimate hole put paid to those hopes.
Austria's Bernd Wiesberger shot six under for the second round running to keep the pressure on in second place, with the rest of the field facing an uphill task to reel in the leader.
Ross Fisher also carded a 66 to move up 12 places to third on nine under, while there was a more positive day for Ryder Cup hopeful Stephen Gallacher.
Having only made par on Thursday, a late flourish on Friday saw Gallacher sink four birdies from the final four holes to go round in 65 to bolster his chances of securing a place on Paul McGinley's Europe team.
The world number 34 needs to finish in the top two of the competition to take the final qualifying spot and, having seen Otto and Wiesberger in such fine form, the Scot was delighted to remain in contention.
"It would be nice to follow it up with more of the same. I knew I had to go low at some stage and I'm just delighted to get on a run on the back nine," he told the European Tour website.
"I don't think I could say on air what I was thinking when I saw the leaderboard at lunch. It was a strange feeling. I was looking at the guy who was second to be honest to try and catch him up a bit and a couple more 65s at the weekend and we will see what happens.
"There are two more rounds and a lot can happen in golf. Just to be in with a shout on Sunday is all you can ask."
McGinley himself missed the cut, with the likes of George Coetzee and Chris Wood also failing to make the weekend.