Half of Melbourne's high-rise apartments contain non-compliant external cladding, a Victorian Building Authority audit has found.

But the authority said the buildings were all safe to occupy and residents were not at risk.

The authority inspected the buildings after a fire at the Lacrosse apartments in Docklands in November 2014.

The fire was sparked by a cigarette butt on a balcony but its rapid spread from the sixth floor to the top of the building on the 21st floor was blamed on substandard cladding.

The audit was done on 170 buildings and 51 per cent were found to have used the wrong cladding.

But only two buildings — the Lacrosse apartments and Harvest Apartments in South Melbourne — required immediate emergency action.

The VBA's John Rees said it was a disappointing result and penalties were likely.

"We've acted swiftly with the appropriate municipal building surveyors to make sure the occupants of those buildings can continue to live there and be safe," he said.

"We'll look deeper into what it's [the audit's] found and where it's appropriate we will actually be taking action against builders where we find that there has been issues of misconduct, that they have not actually understood the regulations properly and have not actually built to the appropriate codes."

The VBA said an investigation into the builders involved in the Lacrosse apartments was underway.

Victorian Building Authority chief executive Prue Rigby said the audit's findings showed the building industry had failed at a number of levels.

"It was through the design phase, it was through the approval phase and it was through the building phase," she said.

"That says clearly to us that there is a misunderstanding ... about the requirements about the national construction code."