The government of the Turkish Republic of Northern Cyprus (TRNC) – the self-proclaimed state recognised only by Turkey -- said the virus had been contained in a small village in the island’s east.
"There is no need to panic. All necessary measures have been put in place,” TRNC Prime Minister Ferdi Sabit Soyer told reporters after an emergency meeting with ministers and senior officials.
"It is a very local incident," he told a press conference in the Turkish section of the divided capital Nicosia, adding that no other suspicious cases of bird flu had been detected either in poultry or humans elsewhere in the TRNC.
The test results were announced in Brussels by the European Commission which said that a British laboratory confirmed the H5N1 strain in samples from one of two sick chickens from the small village of Incirli (Makrasika) near Famagusta on the island's eastern coast.
The commission, the European Union's executive arm, was sending two veterinary experts to Cyprus to investigate.
It is the first time avian influenza has been found in Cyprus. There have so far been no cases in the Greek Cypriot south.
The island lies 75 kilometres from the southern coast of Turkey, where four people have died from the H5N1 virus, the first human casualties of the disease outside Southeast Asia and China.
Since detecting the sick chickens in Incirli, Turkish Cypriot officials have imposed a 10 kilometre quarantine zone around the village and culled around 1,500 poultry.
Under additional measures, Prime Minister Soyer announced a ban on the movement of poultry and birds in and out of the quarantined zone as well as open-door raising of poultry.
"We do not see the need for the slaughter of more animals at the moment," he said.
He appealed for cooperation with the internationally-recognised Cypriot government in the south, explaining that part of the quarantined zone was inside Greek Cypriot territory.
"We cannot take measures there and we believe the virus may have been introduced to the north by migratory birds stopping over the small lake near the village of Ahna," he said.
The Cyprus government introduced tighter measures to guard against bird flu last week after reports of suspicious cases in the north.
Officials began to slaughter poultry not kept in enclosed spaces on Tuesday, while stricter inspections have been set up on the checkpoints between the north and the south.
Greek Cypriot officials have warned their citizens against buying smuggled poultry from the north. As an extra measure, vehicles crossing the UN-manned buffer zone between the two communities were being sprayed with disinfectant.
Cypriot Agriculture Minister Timis Efthymiou also said on Sunday all the necessary measures against bird flu were in place and there was "no need for panic", but said the border crossings would not close.
The minister also stressed the EU, of which Cyprus is a member, had not imposed restrictions on the export of poultry.
Cyprus has been divided along ethnic lines since 1974 when Turkey invaded and occupied the north in response to an Athens-engineered Greek Cypriot coup in Nicosia aimed at uniting the island with Greece.