Schwartzel, the 2011 Masters champion who finished tied 50th on Sunday, blitzed eight birdies for a one-shot lead at 64, closely followed by Oosthuizen who came roaring back from his agonising Augusta play-off defeat with a 66.
India's Jeev Milkha Singh was alone in second place with 65 at the par-72 Kuala Lumpur Golf and Country Club while Oosthuizen, who cracked an eagle on the par-five third, shared third with Jason Knutzon and Jyoti Randhawa.
Oosthuizen, 29, said his confidence was high despite Sunday's play-off loss to flamboyant American Bubba Watson, which was followed by a 30-hour journey to tropical Malaysia accompanied by his wife and children.
"We played well. Charl played really well, he could have shot 10, 11-under if he'd wanted to so it's always great to see him play well and it's just nice playing together when you're both playing well," Oosthuizen said.
"Any tournament where you finish well, you always take confidence out of it. I feel like I've been playing well for quite a while now and I just came in here trying to win this event."
Close friends Oosthuizen and Schwartzel, playing together alongside Thailand's Thongchai Jaidee and looking surprisingly fresh, duelled for the lead as they swept through the undulating course on a balmy morning.
Starting from the 10th hole, the South African duo both turned at three-under before Oosthuizen drove into a flower-bed from the first tee for bogey, one of two in his round among six birdies.
But Oosthuizen, who had stunned Augusta with a 253-yard albatross on Sunday, quickly recovered with an eagle on the par-five third hole after he cracked a three-iron to within 20 feet and drained a curling putt.
Meanwhile Schwartzel went on a run of five birdies up the home stretch to finish on eight-under 64. He said both players had fed off each other's energy during the round.
"We both got off to really good starts from the beginning and it helps if you see guys making birdies. You know that they're out there and Louis's playing so good right now it's nice to watch, it urged me on," Schwartzel said.
"I felt surprisingly good. I got a good night's sleep and I woke up before my alarm and I was ready to go. We're going to go back and lie down for a bit," he added.
World number seven Martin Kaymer, the highest ranked player in the field, besmirched his round with two double-bogeys before recovering with three birdies in the last five holes to finish on two-under 70.
New Zealand's Michael Campbell, the 2005 US Open champion who is without a victory since that year, carded a level-par 72 to lie alongside Todd Hamilton, winner of the 2004 British Open.
Indian world number 1,437 Ghaurav Ghei made a flying start with three birdies and an eagle in his first four holes. But his hot streak cooled and he finished at four-under 68 in the evening gloom.