Poultry farmers within a three-kilometre risk area have been ordered to keep their flocks indoors, and a 10-kilometre surveillance zone has also been set up.
The infected mute swan was found on a harbour slipway in Cellardyke, Fife a week ago, a day after it was reported by a resident.
The zone contains 175 registered poultry centres in the zone with about 3.1 million birds, of which 260,000 are free range, said authorities. Other birds are undergoing testing.
British officials have tried to allay public concern about the risk of transmission of the virus to humans, saying there is a low risk.
"There is a better chance of a person winning the national lottery than catching bird flu in the UK today," doctor Jim Robertson from the National Institute for Biological Standards and Control said.
"This is an unwelcome and important development from the point of view of poultry health, but there are no implications either for human health or consumers," the National Farmers' Union said
Medical officials said the danger to humans is minimal, saying there needs to be prolonged close exposure to infected birds in order to contract the potentially fatal virus.
Britain's first case of H5N1 was discovered last October in a parrot imported from South America. But it died whilst quarantined with birds from Taiwan, enabling the virus to be immediately contained.
In Glasgow, city officials said Thursday that two swans found dead in a local park had been sent off for testing, while six swans were reported to the authorities in Northern Ireland.
Another death in Egypt
Meanwhile, the death of a 16-year-old girl in Egypt has been blamed on bird flu, as the country also announced that an eight-year-old boy was infected with the virus.
Both were from provinces in the Nile Delta, north of the capital Cairo, and their families raised poultry for domestic consumption.
The news brings to 11 the number of human cases in Egypt, including three people who have died.
The only other countries in the region to have recorded human cases are Iraq and Turkey, which has suffered the most serious outbreak with 12 infections, including four deaths.
In Africa, the H5N1 strain has been detected in the Nigerian commercial capital Lagos, the continent's most populated city.
So far no human cases have been detected in Nigeria. Lagos is home to around 15 million people, many of whom keep chickens in their back yards.
Almost half a million birds have died or been culled in Nigeria in the three months since the country started battling bird flu.