The 41 year old Welshman, who is slowly regaining his form after an injury ravaged 2013 campaign, birdied the 13th, 15th, 16th and 18th holes for three under par round of 68 to move to eight under par, with Englishman Simon Wakefield (67) his nearest rival on four under par.
Two-time European Tour winner Dredge is chasing his first title since the 2006 Omega European Masters and is also trying to improve his position in the Race to Dubai, where he currently sits in 182nd position.
He will also have home favourites Thomas BjÃƒÂ¶rn (73) and ThorbjÃƒÂ¸rn Olesen (70) to contend with over the weekend, despite joint overnight leader BjÃƒÂ¶rn losing ground with a round that contained only one birdie. The Danish pair are tied for third position on three under par, along with Scotland's David Drysdale and England's Garrick Porteous, both of whom signed for rounds of 68.
Dredge is delighted with his position but is aware of the fact that it is only the halfway mark.
"If someone had said I'll give you a four shot lead after 36 holes you would take it,"said the leader after his round. "We're halfway through the tournament and I've been in similar positions to this before. I know a lot can happen and I've got to play really well over the weekend. There are some really good players chasing me so I have to keep playing the way I have been and convert the chances I get.
"I feel as though the Tour events I'm playing in this year are like Majors to me, with my situation. I know that when I come out here I have to play well and perform. I don't know if that is added pressure, but it is certainly added motivation. I feel very motivated when I come out and play and I'm looking forward to this weekend."
Three Australians started the event but only two made the cut with South Australian, Wade Ormsby, the best in 35th position and Richard Green 52nd.