A rollercoaster back nine, in which she mixed three birdies with three bogeys and a horror double-bogey on the 13th, left Lee with a third round 72.
The Australian, whose younger brother Min Woo Lee remained in contention at this weekend's men's US Open in Los Angeles, now lies six shots off leader Amy Yang, tied for 13th at nine under.
It will take a monumental last-day effort for her to catch the Korean.
Yang birdied all five par-5s at Blythefield on Saturday, carding her third-straight 5-under 67 to take the outright lead.
"All week my ball-striking has been really good," Yang said.
"I was giving myself good chances out there. I was a little bit off with putting speed during the round, made a couple mistakes, but I tried to stay patient and just keep trying."
The LPGA Classic is the final tournament before the major Women's PGA next week at Baltusrol and the US Women's Open at Pebble Beach on July 6-9.
"(I'm) always doing my best to win my first major," Yang said.
"If I play well this week it'll definitely give me good confidence going into a major."
Ashleigh Buhai (66), the 34-year-old South African who won last week's LPGA Classic in New Jersey, was a stroke back from Yang, tied with second-round leader Ayaka Furue (69) of Japan and China's Xiyu Lin (66).
"My mindset is exactly the same as the last few months," said Buhai, who also won last year's Women's Australian Open.
"Just trying to do my job well when I get to the ball."
Ariya Jutanugarn (66), Hyo Joo Kim (69) and Ireland's Leona Maguire (69) are in joint fifth at 13 under.
- with AP
