The 19-year-old birdied three successive holes from the par-four 11th before parring the last five to finish at 10-under, two better than American Katie Burnett.
"I holed a couple of nice putts (today) and just got my momentum going on the front nine," Lee told reporters.
"I birdied eight and nine, so I think the momentum carried on through the back nine."
Burnett is at eight-under-par after matching Lee's 66 also in the afternoon.
South Korea's Su-Yeon Jang is third at seven-under-par.
World number one Lydia Ko stalled with an even-par 72 and is one-under-par for the tournament.
Michelle Wie improved on her opening round 80 with a one-over-par 73 but failed to make the cut at her hometown event.
(Writing by Jahmal Corner in Los Angeles; Editing by Greg Stutchbury)
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