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Nadal, gunning to unite the four Grand Slam titles for the first time since 1969, was surprisingly broken twice by the confident Australian 18-year-old in the second set before recovering strongly to win 6-2, 7-5, 6-3.
Nadal, ironically the last teen to beat a world number one at a major when he conquered Roger Federer at the 2005 French Open, stretched his Grand Slam streak to 23 matches after winning Roland Garros, Wimbledon and US Open last year.
The 24-year-old Spaniard will next play Marin Cilic after the Croatian 15th seed defeated fellow five-set specialist John Isner 4-6, 6-2, 6-7 (5/7), 7-6 (7/2), 9-7 in 4hr 33min.
"I need to play a bit better if I really want to have a chance to go to the quarter-finals," Nadal said. "I'm not playing bad but I have to play more aggressively, longer and closer to the lines."
Robin Soderling and Andy Murray, among the leading favourites to break Nadal and defending champion Federer's Grand Slam stranglehold, were on a collision course for the quarter-finals as both reached week two without dropping a set.
Murray, last year's beaten finalist and the fifth seed, dismissed Guillermo Garcia-Lopez of Spain 6-1, 6-1, 6-2, as he seeks Britain's first Grand Slam title in 75 years. He will face Jurgen Melzer in the next round.
"It was very good to get off quickly. I didn't use up much energy at all. There weren't many long rallies. So, yeah, it was perfect," said the Scot.
Soderling, backed by Swedish great Bjorn Borg, eyed his fourth successive Grand Slam quarter-final after cruising past Jan Hernych 6-3, 6-1, 6-4. He will play Ukraine's Alexandr Dolgopolov, who beat 2008 finalist Jo-Wilfried Tsonga.
"Physically, I feel very good. I haven't spent too many hours on court and I'm already in the fourth round, which is very good and an advantage for me," said the Swedish world number four.
Milos Raonic, the 20-year-old Canadian with the thunderous serve, shocked 10th seed Mikhail Youzhny to reach the fourth round on debut, and register his first win against a top-10 player.
Montenegro-born Raonic, who served a tournament-quickest 230 kilometres (143 miles) per hour screamer against Michael Llodra, will play David Ferrer after the Spanish baseliner knocked out 20-year-old Lithuanian Richard Berankis.
Austria's Melzer, the 11th seed, went through when 2006 finalist Marcos Baghdatis pulled out of their match with a finger injury while trailing in the fifth set.
Earlier US Open champion Clijsters was made to work by France's Alize Cornet, who fought hard on her 21st birthday but could not prevent the Belgian winning 7-6 (7/3), 6-3.
US Open champion Clijsters has a chance to return to world number one, two years after her long break to have a baby, if she wins here and top seed Caroline Wozniacki falls before the semis.
"I know (Cornet) didn't get the result she wanted, but it's not a bad place to celebrate your birthday out here on the Rod Laver Arena," said Clijsters, who will play Russia's Ekaterina Makarova in the next round.
World number two Vera Zvonareva, who could also finish the tournament as world number one, survived a Lucie Safarova fightback to stay on course for her third successive Grand Slam final.
Zvonareva looked set for an easy win until she tightened up and needed two match points in a tense tie-break before going through 6-3, 7-6 (11/9). The Russian's next opponent is Czech player Iveta Benesova.
China's Peng Shuai beat Japan's Ayumi Morita to join compatriot Li Na in the fourth round, raising hopes they can match Li and Zheng Jie's run to last year's semis. Peng will now face Poland's Agnieszka Radwanska.
But Czech player Petra Kvitova doused local hopes when she knocked out below-par French Open finalist Samantha Stosur, the fifth seed, 7-6 (7/5), 6-3.
"It's a tough loss, but I think I can walk off thinking I played quite well and did everything that I could," Stosur said.
Kvitova sets up a last-16 clash with Italy's Flavia Pennetta, who beat Israel's Shahar Peer in three sets.
Collated results from day six of the Australian Open at Melbourne Park on Saturday (x denotes seeding):
Men's singles
Third round
Robin Soderling (SWE x4) bt Jan Hernych (CZE) 6-3, 6-1, 6-4
Milos Raonic (CAN) bt Mikhail Youzhny (RUS x10) 6-4, 7-5, 4-6, 6-4
Andy Murray (GBR x5) bt Guillermo Garcia-Lopez (ESP x32) 6-1, 6-1, 6-2
Alexandr Dolgopolov (UKR) bt Jo-Wilfried Tsonga (FRA x13) 3-6, 6-3, 3-6, 6-1, 6-1
David Ferrer (ESP x7) bt Richard Berankis (LTU) 6-2, 6-2, 6-1
Marin Cilic (CRO x15) bt John Isner (USA x20) 4-6, 6-2, 6-7 (5/7), 7-6 (7/2), 9-7
Jurgen Melzer (AUT x11) bt Marcos Baghdatis (CYP x21) 6-7 (5/7), 6-2, 6-1, 4-3 (ret)
Rafael Nadal (ESP x1) bt Bernard Tomic (AUS) 6-2, 7-5, 6-3
Women's singles
Third round
Agnieszka Radwanska (POL x12) bt Simona Halep (ROM) 6-1, 6-2
Vera Zvonareva (RUS x2) bt Lucie Safarova (CZE x31) 6-3, 7-6 (11/9)
Iveta Benesova (CZE) bt Anastasia Pavlyuchenkova (RUS x16) 6-3, 1-6, 7-5
Peng Shuai (CHI) bt Ayumi Morita (JPN) 6-1, 3-6, 6-3
Kim Clijsters (BEL x3) bt Alize Cornet (FRA) 7-6 (7/3), 6-3
Flavia Pennetta (ITA x22) bt Shahar Peer (ISR) 3-6, 7-6 (7/3), 6-4
Ekaterina Makarova (RUS) bt Nadia Petrova (RUS x13) 6-2, 3-6, 8-6
Petra Kvitova (CZE x25) bt Samantha Stosur (AUS x) 7-6 (7/5), 6-3
