Police using a detection dog search cars at Rainbow Serpent Festival for drugs. Credit:Victoria Police

The Rainbow Serpent music festival faces an ultimatum to clean up its act or be barred from going ahead by local authorities.

This year’s festival has seen seven hospitalisations, with two young people fighting for their lives, along with more than 20 serious drug arrests.

The mayor of the local council in which the festival is held says there will be "serious consideration" of the festival's future if drug issues at the event become "out of control".

Pyrenees Shire Council mayor Robert Vance says the number of drug-related health issues was deeply troubling.