Simple and with little changes. And also hide load more when entire list is loaded.
jsFiddle here.
$(document).ready(function () {
// Load the first 3 list items from another HTML file
//$('#myList').load('externalList.html li:lt(3)');
$('#myList li:lt(3)').show();
$('#showLess').hide();
var items = 25;
var shown = 3;
$('#loadMore').click(function () {
$('#showLess').show();
shown = $('#myList li:visible').size()+5;
if(shown< items) {$('#myList li:lt('+shown+')').show();}
else {$('#myList li:lt('+items+')').show();
$('#loadMore').hide();
}
});
$('#showLess').click(function () {
$('#myList li').not(':lt(3)').hide();
});
});