Thierry Neuville and Juho Hanninen had taken full advantage of the lead cars sweeping the loose gravel off the line during the opening loop of stages and were poised to enter the interval at the top of the order before both hit trouble on the Loelle test.
Erstwhile rally leader Neuville came to a halt before the first split of the 27.30km stage with a mechanical issue and lost over 20 minutes.
His misery promoted Hanninen to top spot, but his command of the rally was shortlived as he rolled his Hyundai i20 WRC before reaching the finish.
Volkswagen's Latvala, meanwhile, had a great run through the troublesome stage and moved to the top of the overall classification, 2.2 seconds ahead of Citroen driver Ostberg, who has been in the mix all day.
Ford privateer Martin Prokop also put in a strong performance through the opening loop and is 10.1s behind the ultimate pace in third, while Andreas Mikkelsen and Robert Kubica round off the the current top five after adopting a cautious approach through the four stages.
Championship leader Sebastien Ogier is sixth and was not the least bit happy with running first on the road.
"There's no grip, it's impossible," said Ogier.
"It shows the stupidity of this rule."
Kris Meeke experienced a battery issue towards of the end of the penultimate stage of the morning and came to a halt three quarters of the way through the final stage, but the biggest drama of the day belonged to Mikko Hirvonen.
The Finn was forced to retire while en route to the third stage of the day after his M-Sport Ford Fiesta RS caught fire and burned to the ground, delaying the rest of the loop.
He and co-driver Jarmo Lehtinen escaped unharmed, but Hirvonen was left mystified by the blaze.
"I have no idea what caused it," he told WRC Live Radio.
"Obviously our car caught fire, but I have no idea what caused it.
"Everything was cool and peaceful, and then it just went up - fire extinguishers couldn't stop it."
- Thierry Neuville
- Juho Hanninen