Kennedy added a third round of 68, the best of the day, to draw three clear of playing partner Josh Geary and four clear of Terry Pilkadaris, the latter of who has recovered from a slow start to the tournament to be on the edge of contention.
Kennedy, the leading world ranked player in this week's field, made only a late decision to play the event having finished 29th on the Japan Tour money list in his rookie season.
Being unsure if he would make this week's 28 man Golf Nippon Series field for leading players in Japan when he missed the cut at his last Japan Golf Tour event in October, Kennedy kept his options open until late in the piece.
"I had to make the choice last week whether to play the Casio Open and try and qualify for that event or play the Australian PGA Championship," said Kennedy after his third round. "I was about Ã‚Â¥1 million ($12,000) short of making the field but decided instead to play at Coolum."
"Not many rookies on the Japan Tour have made it through to the Golf Nippon Series and it is a great event but maybe next year.
"I hadn't planned to play this event in September /October as I was hoping to play well enough in the Australian Open to get enough money up on the Australasian Tour money list. "I missed the cut there and am now glad I did come here," added the 37 year old.
Despite dropped shots at each of his last two holes today, Kennedy still has control of the event, a superb display of quality iron play and excellent putting separating him from the field.
"It was a bit of a battle out there "“ it was up and down like a yoyo," said Kennedy after his round. "I got off to a bit if a poor start and three putted the first but made a great birdie on the 2nd and the 3rd. I felt like today I just had to keep attacking and I will be doing the same tomorrow. You can't let this course get to you. If you try and stay conservative it can get you pretty easily.
"I kept attacking all day and made a couple of great swings through the middle of the round - made a great putt on the 7th and then hit a great chip on the 9th and then birdied the 10th. It was a great day but a lot of frustration as well."
After his early blemish at the first, Kennedy took the lead when he birdied the 7th from 55 feet and was ahead for the remainder of the round. It was at the 15th however where he took absolute control of the third round lead and arguably the tournament.
Kennedy was well positioned in the middle of the fairway at the short par four and from 93 metres from the flag and with a 54 degree wedge in his hand he spun it back from behind the hole eventually finding the bottom of the cup.
"I knew the backstop was there behind the hole but wasn't really trying to use it and just hit it perfect and it took one big bounce and when I saw it coming back down the slope I knew it was going to be close but to go in was just one of those shots."
That took Kennedy five shots ahead briefly but Geary birdied the 16th and was further aided in his when Kennedy faltered over the closing holes.
Kennedy made a great up and down after missing the green at the 16th but then three putted the 17th for a bogey and then found the fairway bunker at the last and dropped one further shot.
His playing partner and closest pursuer, Josh Geary, also bogeyed the last and the gap remained at three. "It was a bit of a mixed bag really "“ hit the ball not so good today but a couple of great saves to keep me in it," said Geary after his round.
"I missed a short putt on 14 and then on the next hole I hit it close and missed it and he made eagle so those two holes were a swing around in his favour.
"My coach has flown in tonight so have a couple of things to work on with him I am sure and fix up the couple of things from today. It is just two or three easy things so hopefully we can come out tomorrow with better ball striking and my putting can do it again."
Geary headed to the range to work with coach, James Kupa, on his posture and alignment.
Craig Parry cost himself the chance of being much closer when be double bogeyed the 5th hole then added insult injury when he bogeyed the 8th. He played remaining holes in 1 under to finish at 4 under and is still within striking distance.
Parry shares the 4th position with recent in form players, Adam Crawford and Rohan Blizard. The result of the tournament is still in doubt although the manner in which Kennedy is playing it would be a surprise now to see him let his lead slip.
Twelve players are now under par for the 54 holes to date although realistically only those within five of Kennedy's lead have chances ot taking the title tomorrow.
That list inludes the leader, Josh Geary, Terry Pilkadaris, Craig Parry, Adam Crawford and Rohan Blizard, all of whom have won four round tournaments previously.
Weather for the final day is predicted to be wet and cool, adding yet another dimension to the week.