Residents were returning to find the area on Monday after the fire which swept through Snake Valley, west of Ballarat, and destroyed homes in neighbouring Scarsdale and Smythesdale.
Authorities said that the bushfire had burned 3,100 hectares and was fanned by strong winds.
The Mayor of Pyrenees Shire, Lysette Ashford, said some residents, who were forced to flee their homes on Sudnay, were in a state of shock.
About 500 firefighters battled through the night in a bid to control the blaze and the Country Fire Authority (CFA) hopes to bring it under control within hours aided by cooler weather and rain.
The CFA says the fire is still listed as burning although some steady rain had been falling overnight and they stood down just over half their crews.
The fire was thought to have burned up to 5,000 hectares but was down-sized to 3,100 hectares overnight.
Most of the damage was in state park and pine plantations but firefighters would continue to assess the damage to private land on Monday morning.
Firefighters and police were continuing investigations into the cause of the blaze, which is believed to be deliberately lit.
Heat and strong wind gusts of up to 50 kilometres an hour fanned the blaze on Sunday, threatening more than 10 communities in the Ballarat region and the townships of Smythesdale, Scarsdale, Haddon, Nintingbool and Snake Valley remain on high alert.
Road closures are in place on Linton-Snake Valley Road and Hillcrest Road between Snake valley and Smythesdale.
An Emergency Relief Centre has been established at Sebastopol, on Ballarat's southern fringe, and 110 people have registered to receive food, counselling and support and community meetings will be held at Haddon and Snake Valley Monday afternoon.