Price, a native of Wales, birdied the final two holes to complete a 7-under-par and move two strokes ahead of Britain's Ian Poulter at 11-under 133.
Poulter, who lives near the host Woburn Golf & Country Club and is a two-time winner of the event, shot a 67 Friday.
Britian's Philip Golding also shot a 67 and was three strokes back at 136 while Lyle shared fourth place with two other golfers at 137.
Lyle, a former British Open and Masters champion, ranks just 201st on the European Tour this season. But he matched Price's 65 to stamp himself as a serious contender this week.
"I could have said, 'I've played lousy and I'm giving up,'" Lyle said. "But I'm not like that. It's still a challenge and before I go into my box I would like to know what the problem is."
Price, by his own admission, has struggled to recapture his form since automatically qualifying for the European Ryder Cup team last year. He will play in the Ryder Cup for the first time in September.
"I probably moved backwards and that's why I have to prove I am a top player, not just a middle of the pack player," Price said.
Alongside Lyle at 137 were Soren Hansen of Denmark, who shot a 69, and Britain's Simon Khan, who also shot a 65.
Longshots Robert-Jan Derksen of the Netherlands and Spain's Santiago Luna each fired 67s on Thursday to share the lead. But Derksen stumbled to a 74 Friday and Luna shot a 71.
Scotland's Colin Montgomerie, who has been hampered by back problems, was six shots off the pace.