The blaze hit two towns southwest of Melbourne, Wye River and Separation Creek, where many of the 116 houses lost were believed to be holiday homes.

As about 500 firefighters worked to battle the blaze, aerial shots showed buildings razed to the ground in the tree-filled coastal area along the Great Ocean Road tourist drive.

"It's kind of confirmed for us just how hot, just how volatile, just how intense this fire was, burning right to the water's edge," Victoria state Premier Daniel Andrews told the Australian Broadcasting Corporation.

The fire near the coastal town of Lorne was started by a lightning strike on December 19 but flared up yesterday due to hot weather and winds pushing embers over fire control lines.

Victoria's Emergency Management commissioner Craig Lapsley praised the community for heeding the evacuation warning just before lunchtime on Christmas Day to avoid the possibility of fatalities.

In a statement, Lapsley confirmed 18 dwellings at Separation Creek and 98 at Wye River were lost and noted that rain and cooler conditions had reduced fire activity.

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