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The brilliant young Kiwi shot a round of four-under 69 - including five birdies - on the second day, to finish one shot behind Colombian Mariajo Uribe, who leads the way on 15-under.
It is perhaps a measure of just how good she that four-under almost seemed like a disappointment after her headline-grabbing opening round.
Fifteen-year-old Ko was backing up her dazzling opening round 10-under 63 when the winner of three tournaments against pros made 11 birdies and an eagle and needed just 21 putts.
Meanwhile, American golfer Michelle Wie, who turned pro at aged 15, has no advice for when Lydia Ko should ditch her amateur status.
Ko is playing in the same group as Wie in the first two rounds of the Australian Open - which the 15-year-old New Zealander leads after the first round.
Ko recorded 11 birdies and an eagle in her 10-under 63 yesterday while Wie fired a one-over 74 and the third member of their group, world number one, Yani Tseng finished with a five-under 68.
Wie was expected to be the next big thing in women's golf when she turned pro days before her 16th birthday in 2005, which attracted sponsorship deals with Nike and Sony to be reportedly around $US10 million per year.
Since then she has struggled to live up to the hype winning only two LPGA Tour events, the last being in 2010.
"I have no advice for her," Wie told the Golf Channel.
"Turning pro or not turning pro, going to college, not going to college, it's a very personal decision. It's not something someone can say: 'I think you should turn pro. I think you should stay an amateur. I think you should do this or that.'
"It's her life; it's her career. When I turned pro, I really wanted to turn pro. That was a very personal decision for me. I really wanted to do that, and I have no regrets. I hope she makes the right decision for her. Whatever decision she makes, it has to really just be on her and what she wants to do."
Wie had plenty of praise for Ko who won her third professional event last week at the New Zealand Open to go with her NSW Open and Canadian Open victories in 2012.
"She's a phenomenal player," Wie said. "The fact that she's won three times in the last 53 weeks, it's phenomenal. She's really a nice person as well. She seems like she has a great head on her shoulders. She just seems like a kid. So, I hope she stays that way, and she just keeps getting better. I hope she just enjoys it."
World number one Tseng said after her round that she'd seen Ko on TV but never in person before they stood on the 10th tee to begin their round.
"It was fun to watch her (Ko) play golf today. I mean she still looks 15. I don't know how she hit the ball so well. I don't know. I wasn't even that close to her when I was 15. I really enjoyed playing with her today, too. She pushed me up a little bit," Tseng said.
Ko, Wie and Tseng all begin their second rounds at 2.50pm NZT.
- Additional reporting AAP