Secret Sounds Co CEO Jessica Ducrou said she was "gutted to make this call" on Sunday morning, but had to prioritise the safety of patrons, artists and staff.
Punters were being told not to camp in the Otways or any forested area, as emergency services were calling the fire risk 'extreme' and gusts of 90 to 100 kilometres per hour were forecast for Monday, along with possible lighting.
Upcoming Falls Music Festival events in Byron Bay, Marion Bay in Tasmania, and Fremantle in Western Australia are unaffected.
Event organisers said the decision was made with a "heavy heart", but the extreme weather conditions expected brought risks of potential fires, smoke, severe winds and tree hazards.
"Forecasted conditions have gotten significantly worse in the past 12 hours, with information coming to light that has not been available to us before the event kicked off on December 28th," organisers said in a statement online.
"After consultation with local and regional fire authorities and other emergency stakeholders, it is clear that we have no other option.
"The decision has not been made lightly, our patron and staff safety is our priority."
Gates to the event site will close at 9am on Monday.
While food venues, medical tents and sanitary facilities would remain open all day on Sunday, the festival's music and bars are closed.
Organisers said all those who purchased a ticket will be refunded from Monday at 9am.
It's not the first time fire's have disrupted the festival. Organisers had to relocate the festival to the Mt Duneed Estate winery in 2015, due to fire risk, just two days before it was due to begin.
More to come
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