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One home was destroyed at Stonyford, in Victoria's south-west, despite the efforts of firefighters working in temperatures of 41.1C - the hottest December day in more than 50 years. Dozens more houses are under threat.
Military personnel have been mobilised to help volunteer civilian fire crews fight the bush fires.
Specially modified planes and helicopters are dumping water on the flames from above. 
Environment department spokesman Stuart Ord said crews were being stretched by trying to tackle fast-moving fires on several fronts in extreme conditions.
"There is no doubt the fire will hit settlements, the question is which ones?" he said.
Victorian Premier Steve Bracks has compared the situation to the state's "Black Friday" in 1939, when 71 people died in bush fires.
No-one has died in the current emergency, but Mr Bracks said the danger remained critical.
"We expect the next two weeks are going to be really like standing on our toes, waiting and hoping the communities are protected as the fires rage and move through," he said.
He condemned arsonists who, early on Sunday, lit grass fires on the outskirts of Melbourne that threatened homes before they were brought under control.
"The full force of the law will be brought to bear to find these people, to bring them to justice," Mr Bracks said. "We have increased penalties in place."
Volunteer Resources on Bushfires:
