People living near a massive Melbourne recycling plant blaze are being told to evacuate due to toxic smoke blanketing the suburb.

The blaze broke out at the Coolaroo SKM Recycling factory on Thursday morning after firefighters extinguished a smaller blaze at the site on Wednesday night.

Emergency services issued an evacuation warning for the suburb of Dallas at 8.30pm on Thursday night, with very poor air quality levels detected by the Environment Protection Authority.

People are being advised to collect their medicines, pets and belongings and securely lock their houses before leaving.

Emergency services will shortly be door knocking the area to provide further information and support, and if residents do not wish to leave, they should contact 9205 2670 to register their details.

Factory staff and nearby businesses were earlier evacuated and a community relief centre established in Broadmeadows, after smoke poured across Melbourne's north.

"We're saying it could go up to three days to put the fire out completely," MFB deputy chief officer Ken Brown told 3AW.

"What we're trying to do over the next 24 hours is try and get the smoke down ... and then we can fully extinguish this fire."

Mr Brown also said it was the fourth time the factory had caught fire in recent months, with other blazes in February, June and on Wednesday night.

He said firefighters were working with the council and business owners to find out why the fires were starting and how to stop them.

"It's a mixture of cardboard, paper and plastic and they're ground up into fine pieces of stockpile ready for the recycling process," he said.

"They burn rapidly, they burn deep-seated and they're very hard to extinguish."

Clarissa Garrow, who works directly across the road from the fire, said the blaze was "insane".

"No one can get in and no one can get out," she earlier told AAP.

"Ash and papers are flying everywhere. This is a regular thing, on my first day there was a fire there."

The blaze was thought to have started in a pile of recycled materials outside the Maffra Street factory shortly before 9am.

DALLAS STREETS WHICH SHOULD EVACUATE

* Barry Road between Dallas Drive and Doy Street.

* Washington Street between King Street and Doy Street.

* Edmund Street between King Street and Doy Street.

* Doy Street between Barry Road and Edmund Street.

* Dallas Drive to Sale Court, including Sale Court.