Rally Australia leader Andreas Mikkelsen hit trouble in the 14.84km Valla II stage, allowing teammate Sebastien Ogier to close the gap between them at the end of the Saturday afternoon loop.
The Norwegian's lead of 12s after SS15 was trimmed down to a mere 2.8s at the end of SS16 after his Polo R suffered a bizarre issue where the clutch pedal was bent and touching the brake pedal.
"The clutch pedal and brake pedal are pushing down together," said a disappointed Mikkelsen after the stage.
Meanwhile, having passed Hyundai's Hayden Paddon in SS15, Ogier is now within striking distance of the lead of the rally - with two short stages on Saturday and five on Sunday still left to run.
Despite a stage win for Hyundai's Thierry Neuville, the Belgian remained only fourth but gained about four seconds on teammate Paddon.
The battle for fifth raged on between Hyundai's Dani Sordo and M-Sport's Mads Ostberg, the former having closed in on the Norwegian in SS15 and then passing him in SS16, the duo now separated by a mere 0.2s.
Behind, Ostberg was followed by his M-Sport teammate Eric Camilli in seventh, the Frenchman ending up comfortably ahead of ninth-placed Ott Tanak, another fellow Ford driver.
Overall results after SS16 - Top 10:
|1|| Andreas Mikkelsen
|Volkswagen Polo R WRC||2:13'02.2|
|2|| Sébastien Ogier
|Volkswagen Polo R WRC||2:13'05.0||2.8|
|3|| Hayden Paddon
|Hyundai NG i20 WRC||2:13'12.3||10.1|
|4|| Thierry Neuville
|Hyundai NG i20 WRC||2:13'34.8||32.6|
|5|| Daniel Sordo
|Hyundai NG i20 WRC||2:14'01.1||58.9|
|6|| Mads Ostberg
|Ford Fiesta RS WRC||2:14'01.3||59.1|
|7|| Eric Camilli
|Ford Fiesta RS WRC||2:14'17.2||1'15.0|
|8|| Ott Tanak
|Ford Fiesta RS WRC||2:15'18.7||2'16.5|
|9|| Lorenzo Bertelli
|Ford Fiesta RS WRC||2:17'56.5||4'54.3|
|10|| Esapekka Lappi
|Škoda Fabia R5||2:18'21.0||5'18.8|