Officials imposed a total fire ban across Victoria where temperatures were expected to peak above 40 degrees Celsius (104 degrees Fahrenheit) and warned people in high danger areas to be prepared to evacuate.
A Code Red alert indicates the worst possible bush fire conditions, warning people that should a fire start it will be fast moving, unpredictable and likely uncontrollable.
"Homes are not built to withstand the types of fires we may see on a Code Red day and you don’t want to be caught traveling through areas on fire at the last minute if you wait and see,” the Victoria Country Fire Authority (CFA) chief officer Steve Warrington told reporters in Melbourne.
Australia has been battling wildfires across several states for days, endangering thousands of people in many communities. Blazes so far this month have killed at least four people, burnt about 2.5 million acres (1 million hectares) of farmland and bush and destroyed more than 400 homes.
The new front of fires threatens to stretch Australian firefighters who are struggling to contain blazes after sustained drought has left bush land tinder-box dry.
In New South Wales state, firefighters were still tackling more than 60 fires. Strong winds from those fires were blowing smoke over much of Sydney, leaving the harbor city shrouded in thick smog.
Officials told parents to keep children inside as pollution recordings showed the smoke at five times the level considered hazardous.
"They're (children) often more active particularly outdoors, so they're more likely to inhale the smoke in large quantities," Richard Broom, director of environmental health at NSW Health said in an emailed statement.
"It's important that if you do have children, just try and keep them indoors or discourage them from exercising too much outside."In South Australia state, electricity has been returned to around 10,000 people whose homes were cut off the grid on Wednesday because of fire risks. Authorities in that state warned fires could spark despite cooler temperatures.