Thiem earned his first tour-level win in 14 months by downing Emil Ruusuvuori on his Bastad debut, before reaching his first quarter-final of the season by overcoming Roberto Bautista Agut on Thursday.
The Austrian battled to a 7-6 (7-5) 3-6 6-4 victory over the fourth-seeded Bautista Agut, picking up his first top-20 win since beating Novak Djokovic at the ATP Finals in 2020.
Sebastian Baez, who defeated Alejandro Davidovich Fokina in straight sets, awaits in the next round and former world number three Thiem is ready for the task.
"The win against Emil gave me confidence that I can compete against the best players in the world and today against Roberto," said Thiem, the 2020 US Open champion.
"He is always such a tough opponent. I was expecting and hoping it would be a close match. Then when I won the first set in the tie-break I said 'Hey, I can win today.'
"I had the belief until the end of the match and the third set was really good. It is a process. I beat Ruusuvuori and today I beat Bautista Agut.
"Two really top opponents, so if I can beat them I am definitely back. I am into the quarters of a really strong tournament, so I am happy. It is a process, but I am going the right way."
Second seed Andrey Rublev was made to work for his 7-5 4-6 7-6 (7-2) victory over Federico Coria and will meet Laslo Djere, who defeated Marc-Andrea Huesler in straight sets to reach the quarter-finals.
Meanwhile, Auger-Aliassime resumed his match with Jason Kubler in Newport that was suspended due to bad light on Wednesday with a slight advantage but fell to a 4-6 6-3 7-6 (7-4) second-round loss.
That marked a first top-10 victory for Kubler, continuing his fine 2022 season that saw him achieve his best major result at Wimbledon, where he reached the fourth round at the All England Club.
Fourth seed Maxime Cressy is yet to drop his serve at the tournament but needed to survive a first-set scare against fellow American Steve Johnson to triumph 6-7 (3-7) 6-4 6-4.
Second favourite John Isner will meet Cressy in the semi-finals after battling past fifth seed Benjamin Bonzi 6-7 (2-7) 7-6 (8-6) 7-6 (7-5).
Hurkacz made it through a tough encounter against Stan Wawrinka 7-6 (7-5) 6-4 to give Poland a 2-1 lead in their Group B tie with Switzerland in Brisbane, before Linette came from behind to beat Jil Teichmann 5-7 6-4 6-1 to clinch it.
Poland will face Italy in the Brisbane final, whose 5-0 whitewash of Norway included Matteo Berrettini sealing victory with a 6-4 6-4 win over Casper Ruud.
In Perth, Croatia advanced to the City Finals after a dramatic day that saw Caroline Garcia get France on the board with a straight sets win against Petra Martic, before Adrian Mannarino came from a set down against Borna Gojo to serve for the match as he looked to bring his country level at 2-2.
However, Gojo broke back in a tense encounter before winning a deciding tie-break to send Croatia through to face Greece, who sealed a 4-1 win against Belgium.
Stefanos Sakellaridis recovered from going a set behind to beat Zizou Bergs, before Maria Sakkari overcame Elise Mertens 6-1 7-5, with Sakkari and Stefanos Tsitsipas adding some gloss to the score with a mixed doubles success against Kirsten Flipkens and Michael Geerts.
Spain and Australia were unable to progress but the hosts at least had the consolation of securing a victory thanks to wins for Jason Kubler against Albert Ramos-Vinolas, and the mixed doubles duo of John Peers and Sam Stosur against Jessica Bouzas Maneiro and David Vega Hernandez.
The USA had already secured their Finals berth against Great Britain in Sydney, but were ruthless as they finished off their tie against Germany to win 5-0.
After Jessica Pegula beat Laura Siegemund 6-3 6-2, Frances Tiafoe also defeated Oscar Otte in straight sets, before the American duo combined to beat Siegemund and Daniel Altmaier 6-7 (5-7) 6-4 10-7 to complete a clean sweep.
Kubler and Verdasco endured a 71-minute first-set tussle, which the Australian edged 9-7 in a tie-break before dominating the second frame, dishing out a bagel in 29 minutes to win 7-6 (9-7) 6-0.
World number 71 Kubler progressed to the second round where he will take on Colombia's Daniel Elahi Galan who defeated China's Zhang Zhizhen 6-2 6-3.
Johnson set up a second-round clash with American compatriot and top seed Frances Tiafoe after getting the better of Facundo Bagnis 7-6 (7-5) 1-6 6-1 in one hour and 55 minutes.
USA's Kudla also progressed with a hard-fought 6-4 4-6 6-4 victory over Australia's Aleksandar Vukic in just under two hours.
Dutchman Gijs Brouwer won 6-4 6-4 over Aleksandar Kovacevic, setting up a meeting with big-serving fourth seed John Isner.
The 37-year-old Frenchman has not played competitively since August last year due to injury but was eliminated by Thompson 6-3 6-1 in one hour and five minutes.
The Australian was ruthless, converting four of six break points generated, while he did not offer up any to Monfils.
Monfils was rusty, committing 17 unforced errors to Thompson's five, but the veteran hit 14 winners.
Thompson's victory earns him a second-round meeting with second seed Stefanos Tsitsipas.
Brandon Nakashima won the battle of the Americans, getting past John Isner 7-6 (9-7) 6-3 in one hour and 39 minutes. Nakashima progresses to face fifth seed Daniil Medvedev.
China's Wu Yibing produced some thrilling tennis, including an astonishing volley, in his 6-7 (6-8) 6-0 7-6 (7-3) victory over Jaume Munar.
World number 38 Diego Schwartzman won 6-1 6-2 over fellow Argentinian Federico Coria, while 47th-ranked Jiri Lehecka got past Arthur Rinderknech 7-6 (7-4) 7-5.
Australia's Jason Kubler toppled Lorenzo Sonego 6-4 7-6 (7-4) in almost two hours, while 42nd-ranked Bernabe Zapata Miralles was beaten 6-2 7-6 (8-6) by Ugo Humbert.
Finland's Emil Ruusovuori triumphed with Constant Lestienne retiring down 6-4 4-1 and world number 46 Alexander Bublik was a shock casualty, going down 6-4 6-4 to Wu Ting-Lin.
