A music festival in Victoria's north-east has been cancelled at the last minute due to poor air quality from bushfire smoke, which is prompting health concerns for the entire state.

Key points: Air quality has improved slightly in Melbourne but is expected to worsen on Thursday when easterly winds pick up

Air quality has improved slightly in Melbourne but is expected to worsen on Thursday when easterly winds pick up Fire-affected communities in East Gippsland and north-eastern Victoria are experiencing hazardous air quality

Fire-affected communities in East Gippsland and north-eastern Victoria are experiencing hazardous air quality P2 and N95 masks are running low across the state

A Day on the Green was scheduled to take place today at All Saints Estate at Rutherglen, with a line-up including Cold Chisel, Birds of Tokyo and Magic Dirt.

Roundhouse Entertainment promoter Michael Newton said in a statement that the event was cancelled due to "hazardous" air quality at the site and in surrounding areas.

He said the decision was "extremely" disappointing but was made "to protect the health of patrons … staff and artists".

"The Bureau of Meteorology has advised that wind conditions are not likely to assist in improving this unsafe situation over the coming hours," he said.

"We are also concerned about traffic, given the fires in the area."

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Mr Newton said they had to wait until the last minute to make a final call but the conditions were not good.

"Our guys have been up here all week working on the site but it wasn't until I got here yesterday that I fully realised how bad it was," he told ABC Radio Melbourne.

"It was quite humbling to see them work through the conditions as they have. I just cannot imagine what it must be like for the firefighters and people closer to the action."

All those who purchased tickets will be contacted by Ticketmaster and given a full refund.

The cancellation follows the Falls Festival event at Lorne over the New Year period being called off due to extreme weather conditions.

Friday's A Day on the Green show in the Yarra Valley and Saturday's show at Mt Duneed Estate near Geelong are expected to go ahead.

The chief executive of All Saints Estate, Eliza Brown, said she had been expecting 6,500 people for the event and businesses in Rutherglen would take a big financial hit.

"Not only is it tickets sales, it's accommodation, food, petrol people filling up with petrol down the main street," she said.

"All that money doesn't come into the community."

The bushfire smoke blanketing Melbourne set off a handful of smoke alarms in the city on Monday and saw air pollution worsen to "very poor".

Worsening air quality forecast for Thursday

An Ambulance Victoria spokeswoman said the compromised air quality led to a 51 per cent increase in asthma and pollution-related calls yesterday.

An MFB spokeswoman said firefighters were called to a small number of false alarms across the city due to the "smoky air conditions".

She said the MFB was recommending building managers set their air systems to recycle to prevent smoke filtering into buildings.

Smoke from Tasmania, East Gippsland and Victoria's north-east created a haze over Melbourne yesterday. ( ABC News: Gemma Hall )

The smoke affected air quality in Geelong, which was upgraded to "hazardous" levels yesterday afternoon but improved to "poor" by the evening.

Bureau of Meteorology forecaster Steven McGibbony said smoke was still lingering over Melbourne today but had cleared up "substantially".

But he said conditions would worsen again on Thursday when an easterly wind is expected to push smoke from East Gippsland towards the city.

"Visibility was down to 300 metres yesterday in some areas but is up around 10 kilometres this morning," he said.

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Visibility in Horsham and Mildura dropped to about 2 kilometres this morning.

An EPA spokesman said health warnings issued on Monday urging children under 14, the elderly, pregnant women and those with respiratory issues to limit time outdoors still applied.

Victoria's chief health officer Brett Sutton yesterday recommended vulnerable people wear P2 or N25 masks if they had to be outside.

But stores appeared to be running out.

A staff member at Bunnings Collingwood said the store sold out of all P2 and N95 masks on Friday.

"We received a whole heap more on Saturday but they flew off the truck," he said.

The smoke also prompted tennis great Novak Djokovic to suggest Australian Open organisers consider delaying this year's event if the problem persists.