Karunaratne made 83 and Chandimal 61 as Sri Lanka reached stumps on 4-237 in their second innings in Galle on Friday.
They combined from the third over after Pathum Nissanka was dismissed, and navigated challenging moments on a pitch that is increasingly difficult to bat on, with the ball spinning and bouncing.
Glenn Phillips appeals unsuccessfully for the wicket of Sri Lanka's Angelo Mathews. (AP PHOTO)
"When the ball is turning in Galle, defence is a dangerous option. You should always look at scoring runs," Karunaratne said.
"It was a good partnership with Chandimal. We have played lot of cricket together and we understand each other's game."
While New Zealand's spinners were handled quite comfortably, pacer Will O'Rourke was again their most effective bowler.
After a five-for in the first innings, he grabbed three more wickets with his extra bounce.
Karunaratne was cleaned up by leftie Ajaz Patel after his 39th half-century. Chandimal, following his third 50 this month, went in the next over, caught at leg slip off O'Rourke.
O'Rourke then got first-innings centurion Kamindu Mendis to edge to slip on 13.
Captain Dhananjaya de Silva and Angelo Mathews, with 34 each, were involved in an unfinished 59-run stand for the fifth wicket.
Mathews survived a big appeal in the day's last over. After he was hit on the back leg by Glenn Phillips, umpire Michael Gough gave not out. Replays showed the ball would have hit leg stump but it was umpire's call.
New Zealand were batting at the start of Friday, resuming on 4-255, but they were bowled out for 340, a lead of just 35.
Daryl Mitchell posted a half-century beside Tom Latham and Kane Williamson and batted well for his 57, but his run out shifted the momentum.
Phillips smashed an unbeaten 49 off 48 balls with two fours and five sixes, and missed out on a fifty when Ramesh Mendis cleaned up last man O'Rourke.
"We had the momentum in the morning and then that run out gave Sri Lanka a chance to get back into the game," Phillips said.
"I thought there was a run. My partner trusted my call. I take responsibility and hopefully my options will be better next time."
Prabath Jayasuriya was Sri Lanka's standout bowler, finishing with four wickets, while Ramesh Mendis and De Silva shared five wickets.
Saturday will be a rest day as Sri Lanka go to the polls to elect a president. The Test match will resume on Sunday.
