The Japanese player took a two-set lead, before 39-year-old Karlovic, who served 59 aces, recovered to force a decider on Margaret Court Arena.

Nishikori held his nerve to edge out the Croat 6-3 7-6 (8-6) 5-7 5-7 7-6 (10-7) in three hours and 48 minutes.

Meanwhile, Milos Raonic beat 2014 winner Stan Wawrinka in four sets.

Raonic will face Pierre-Hugues Herbert next after the Frenchman beat 24th seed Chung Hyeon 6-2 1-6 6-2 6-4.

The South Korean, who reached the semi-finals at Melbourne Park last year, is likely to drop out of the world's top 50 after the tournament.

Nishikori saved three break points at 4-4 in the final set and was then 6-7 down in the decisive tie-break, as Karlovic stood on the brink of becoming the oldest man to reach the third round since 44-year-old Australian Ken Rosewall in 1978.

"It was a tough match which could have gone both ways. He almost had it for sure," said Nishikori, a three-time quarter-finalist at Melbourne Park,

"I focused well on the last points, I'm very happy to win. We both played great tennis - of course he served really well."

He faces Joao Sousa next after the Portuguese outlasted Philipp Kohlschreiber 7-5 4-6 7-6 (7-4) 5-7 6-4.

Canada's Raonic was forced to come from a set down to see off Swiss three-time Grand Slam champion Wawrinka, who was unseeded for the first time since his debut in 2006 after injuries saw him drop to 59th in the world.

Raonic, the 16th seed, won 6-7 (4-7) 7-6 (8-6) 7-6 (13-11) 7-6 (7-5) in four hours one minute.

"It feels like four hours passed by in about 15 minutes," he said.

"It was the heat of the battle - the adrenaline takes over and I was fortunate to stay alive in that fourth set.

"I am thankful I was able to play a good match."