Environment groups have warned the Victorian Government that its decision to lift a ban on onshore gas exploration could lead to worse bushfires and droughts.

Key points: Conventional gas exploration will be permitted in Victoria from July 2021

Conventional gas exploration will be permitted in Victoria from July 2021 But fracking and coal seam gas drilling will be permanently banned

But fracking and coal seam gas drilling will be permanently banned A report overseen by the state's lead scientist found there were gas reserves which could be extracted without causing environmental harm

The Andrews Government will introduce new laws into State Parliament to allow for an "orderly restart" of drilling for gas reserves underground from July 2021.

Premier Daniel Andrews said the new gas supplies would be reserved for Victorian households and businesses first and companies that wanted to drill for gas on private land would have to strike agreements with landholders.

The announcement came after a three-year investigation by the Victorian Gas Program, overseen by Victoria's lead scientist Amanda Caples, found there were gas reserves in Victoria that could be extracted without harming the environment.

But a temporary ban on fracking and coal seam gas will be made permanent.

"Over 80 per cent of the community in the South West of Victoria and in Gippsland are supportive of exploration and development," Dr Caples said.

Dr Caples said the research had shown there could be up to 830 petajoules of gas in both the Otway Basin and Gippsland.

Victoria uses 220 petajoules of gas annually.

Environment Victoria chief executive Jono La Nauze said the Government's decision would expose everyone to a greater risk of climate change.

"It's extraordinary that after such a horror bushfire season any government would be considering increasing fossil fuel use in the state," Mr La Nauze said.

"Increasing gas use in Victoria will expose Victorians to a greater risk of climate change including worse droughts and worse bushfires."

Premier says move backed by science

The Victorian Greens said opening more drilling for gas would be "terrible for farmers, the environment and the climate".

"In the face of a climate crisis we shouldn't be looking for and burning more fossil fuels," Victorian Greens leader Samantha Ratnam said.

Farmers at Byaduk in south-west Victoria have found creative ways to voice their opposition to unconventional gas exploration and fracking in the past. ( Supplied: Heinz DeChelard )

Mr Andrews said natural gas would be extracted under the highest standards and production of the resource could generate more than $310 million annually for regional economies and create 6,400 jobs.

"We are backing the science to create jobs, boost energy supply and support regional communities," Mr Andrews said.

"In the middle of next year we are ready for a new chapter against the highest of standards, we will get more gas into the overall supply chain and that puts a downward pressure on prices."

Business group welcomes certainty as coronavirus hits economy

Resources Minister Jaclyn Symes said a royalty system was already in place and estimated it could generate $43 million a year for landowners, which could flow back to regional communities.

The Victorian Chamber of Commerce and Industry (VECCI) said the decision was long overdue and would help secure Victorian jobs in a challenging time for businesses battling to stay afloat amid the impacts of coronavirus.

"The decision to lift the moratorium is the right one, not only for business owners, but for all Victorians who in such uncertain times cannot afford to be hit with more unnecessary costs," VECCI chief executive Paul Guerra said.

"The Victorian Government now needs to work with industry and the Federal Government to bring more Victorian gas online and to lower energy prices through an integrated and long-term national climate and energy policy."

The Opposition, which took a policy of lifting the onshore gas exploration ban to the last election, released a statement after the announcement calling for the moratorium to be lifted immediately.

The ban will be lifted on July 1 2021.