As temperatures soared above 40 degrees Celsius (104 degrees Fahrenheit), hundreds of firefighters backed by aircraft battled the blazes, while sweltering residents of coastal cities flocked to the beaches.
In southeastern Victoria state, a major fire destroyed five homes and was burning out of control, sweeping towards several towns across a 30 kilometre (18 mile) front, officials said.
The fire has burned through about 9,000 hectares (22,000 acres) of bush and farmland, damaging dozens of properties and leaving two people injured.
In Sydney, where the temperature reached 43 degrees by early afternoon, a total fire ban was imposed and walking tracks in nearby national parks were closed.
New South Wales fire officials said some 3,000 firefighters were on high alert, with weather conditions expected to worsen across the state later in the day.
"Unfortunately the winds look like they are picking up at this stage and we are expecting them to increase over the rest of the afternoon," said spokeswoman Rebel Talbert.
Fire crews were battling to contain five bushfires threatening property near Gosford on the New South Wales central coast, while a total of 35 fires were burning across the state.
The fire service has asked farmers in the state's south to stop harvesting because of fears that sparks from machinery could start a fire.
The government's bureau of meteorology said recently that average temperatures for the first 10 months of 2005 were 1.03 degrees above the 30-year mean and that the country was on track for the hottest year on record.
The city of Melbourne, capital of Victoria state, topped off its warmest ever December with a record hot New Year's Eve, the bureau said.
The temperature peaked at a scorching 42.9 degrees, breaking the previous record of 41.7 degrees on December 31, 1862.