How did the phrase 'third degree' originated?

It's widely believed to originate in Freemasonry. It is said that a Mason who wanted to be admitted to the third degree of the craft had to submit to a rigorous interrogation. A Merriam-Webster website queries this origin, but doesn't seem to suggest an alternative.

Just to add to what Tabby Tom has said, the 'Third Degree' test undertaken by a Mason is in fact a simple one. But many years ago people who were not Masons got the idea that the test was very difficult and believed it to be a nerve-racking mental and physical ordeal. Though this was untrue the popular conception persisted and the term 'third degree' ultimately became synonymous with the severe police questioning of a reluctant prisoner.

The three degrees of Freemasonry as mentioned above:

http://www.phrases.org.uk/meanings/372300.html

A book newly published by Princeton, "Torture and Democracy" by Darius Rejali, says the first degree wass arrest, the second transportion, and the third interrogation. It relates techniques of "interrogation" that Rejali brands "torture," and if he and his information are reliable, it was.

http://press.princeton.edu/titles/8490.html
http://books.google.com/books?id=L8QLvrX-iL0C&pg=PA73&lpg=PA73