Crews were dispatched to the site in Corio, about 60km southwest of Melbourne, shortly after 11pm on Wednesday following reports of explosions and flames.
The Viva Energy Geelong refinery supplies more than 50 per cent of Victoria's fuel and 10 per cent nationwide, according to Viva's website, and the fire comes during a global fuel crisis.
The refinery can produce more than 120,000 barrels of oil per day, manufacturing petrol, diesel, jet fuel, LPG, avgas and low aromatic fuel.
The blaze is not yet under control but is currently contained to the area where it broke out, Fire Rescue Victoria said.
About 50 firefighters, ten fire trucks and a boat attended the scene, FRV assistant chief fire officer Michael McGuinness told reporters on Thursday.
"(It was) quite ferocious. The fire went from a small fire through several explosions to be quite a large, intense fire," Mr McGuinness said.
The fire broke out at units responsible for the production of petrol, speciality regional products and aviation gasoline, which is distinct from jet fuel.
Production has ceased at those units but imports will be sufficient to cover any shortfalls, Viva Energy Australia's chief executive Scott Wyatt said.
"We'll only start increasing production again once we're confident we can do that safely," Mr Wyatt said."To the extent we have shortfalls in production, just cover that with our import program, which is quite full for the next… couple of months."
The facility had been running at high levels of production to compensate for global fuel disruptions, said Bill Patterson, the refinery's general manager.
"We've been running really quite hard over the last six weeks," he said.
He said some maintenance activities had been delayed to enable increased production, but not at any units directly impacted by the fire.
There are no reported injuries and all employees and emergency responders have been accounted for.
Energy Minister Chris Bowen said petrol production has been affected, while jet fuel and diesel are being produced at reduced levels.
"At this point, the impact is mainly on petrol production, but obviously this is very early days," Mr Bowen told Nine's Today program on Thursday.
Along with the Lytton Oil Refinery in Brisbane, the Geelong plant is one of two facilities capable of refining fuel domestically.
Both have been under the spotlight in recent weeks amid fuel security challenges related to conflict in the Middle East.
A watch and act alert for residents of Corio, Norlane and North Shore was downgraded to advice level about 5.30am.
Locals are advised to go about their normal activities but to expect possible smoke, emergency services and traffic disruptions in the area.
FRV specialists are undertaking atmospheric monitoring and Victoria Police, Ambulance Victoria, EPA and Worksafe are at the scene.
Investigations into the cause of the fire will take place, a Victoria Police spokesperson said.
"People in the surrounding areas are being advised to keep their windows closed due to the large amount of smoke," they added.
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