Highly-strung American star John Daly put four balls in the water and then tossed his putter 20 metres into the middle of a lake during a dramatic exit from the $1 million PGA Championship at the Hyatt Coolum Resort.

Daly, who has experienced an emotionally traumatic fortnight with the death of his mother last week, was fuming as he barrelled his way off the 18th green after hurling his putter into the water.

He shook hands with playing partners Greg Norman and Craig Parry but didn't speak to anyone else as he headed off to his villa to pack.

No stranger to controversy, Daly declined to sign his card forcing tour officials, who had earlier been embroiled in a controversial ruling on the 13th hole, to disqualify him.

Daly's battle to make the cut ended with a triple bogey at the 13th where he found the water twice after exchanging heated words with tour official Gus Seebeck.

As the drama unfolded on the 18th green, reformed West Australian Jarrod Moseley was signing for a round of 66 and a one-shot lead over Victorian Aaron Baddeley who putted magnificently again for a 65 to be 12-under.

Peter Lonard (65-68) was two from the lead on 11-under with Perth's Nick O'Hern (70-66) and Queenslanders Tony Carolan (70-66) and Adam Le Vesconte (68-68) tied for fourth on 8-under.

It was another shot back to young Queenslander Adam Scott who matched Baddeley's best round of the day of 65 to be in sixth place with fading first-day hotties Greg Turner of New Zealand (66-71) and West Australian Greg Chalmers (67-70).

Norman got himself back in the golf tournament with a great ball-striking round of 65 to be eight shots behind Moseley.

Daly's day of destruction started at the 361m par-four 13th hole where he stepped onto the tee at even par after picking up three shots and looking likely to make the weekend cut.

He put his drive in the water but, after consultation with Parry who was marking his card and some heated words with Seebeck who disagreed with his view of where his ball crossed the hazard, Daley trudged back to the top of the lake to play his third shot.

Parry gave his opinion of where he thought Daly's ball crossed the hazard while Norman kept out of the discussion until called over by a rules official.

"Craig had his score card and Craig had to deal with it with the official who called me over the verify it and I did and I was out of the picture," Norman said.

Clearly angered, Daly smoked his next shot up the fairway, hitting Seebeck's cart and rebounding into the lake again.

Daly should not have hit the shot with Seebeck at the 13th green making another ruling involving Kiwi golfer Phil Tataurangi in the group ahead.

Parry backed the rules official saying he thought the ball went in where Daly played his third shot.

"That was the only position to drop it as far as I was concerned but JD thought it went down further and hooked into the hazard.

"I thought it went over the corner of the trees."

Tour officials later confirmed Daly's actions at the 13th and 18th holes would be investigated with the American facing a series of fines.

When Daly walked off the 13th green his spirit was broken and he finished his last six holes in nine over par.

He had four birdies on the easier front nine to turn in 32 but collapsed on the homeward nine which he played in 10-over 46.

Tournament promoter Tony Roosenberg, who would have paid Daley around $US250,000 ($A447,600) in appearance money, said he would have to review Daly's involvement in the Heineken Classic in Melbourne in February after the display.

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