The 28-year-old from Edinburgh reeled off seven birdies and an eagle in an eventful seven-under 64 for a 15-under 198 as he finished at the head of the standings with Chris Doak, who saw his commanding five-shot overnight advantage crumble.
Kerr, who trailed a rampant Doak by six at the halfway stage, barged into contention with a superbly assembled round which included a rocket-like tee-shot at the par-three 11th which hurtled into the cup and bounced back out for a hole-in-one that never was.
"It rifled straight in and came out but one side of the hole just caved in and they spent about ten minutes repairing it," said Kerr, who also made a less damaging mark on the King's course at the sixth with a 25-foot putt for eagle. "After two rounds, I was thinking Chris was going to run away with it but this was my best round as a pro and I'm right back in there."
Along with the 2009 Scottish champion David Orr, Kerr missed the first six months of this season because of a ban following a well-documented breach of the PGA's training rules, but the Dalmahoy pro is now aiming to finish a disrupted campaign on a high.
He added: "It's difficult for a professional sportsman to be out like that. For much of the year golf has been more of a hobby as I've been working 40 hours in the shop. This round felt like the round of a proper pro golfer. It's a hugely important event for me and I'm looking to win."
Greenock pro Doak, who had romped to the front with a dazzling 61 in round two, was dragged back into the pack as he got himself into a desperate guddle behind a tree at the driveable par-4 14th and racked up a crippling triple-bogey seven on his way to a one-under 70.
West Linton's Gareth Wright lurks in third on 200 after a 66 while former European Tour rookie of the year Scott Henderson holed his eight-iron tee-shot at the par-3 fifth in a 66 to move up into a tie for fourth on 201 with David Patrick and Greg McBain.
Andrew Coltart, the Scottish champion in 1994, also hit a 66 to sit in 11th on 207.
Meanwhile, Jeppe Huldahl hit seven straight birdies to card an 11-under-par round of 61 to take the clubhouse lead at the Portugal Masters.
England's John Parry moved into joint second after picking up nine birdies to card a 64. Oliver Wilson was within three shots of the lead after ten holes thanks to four birdies on the opening nine, while Ignacio Garrido and Scotland's Steven O'Hara both hit 66 to move up to joint ninth.
