The category five cyclone, which is packing winds of up to 350kph near its core, is moving towards Darwin as it turns towards the coast from the Arafura Sea, and is forecast to cross the Northern Territory coastline late on Monday night.
Senior forecaster Gordon Jackson said the cyclone is expected to weaken after it makes landfall between Maningrida and Crocker Island but will remain a severe tropical cyclone -- possibly a category four or three -- by the time it reaches Darwin on Tuesday afternoon.
Darwin's Anzac Day dawn service and march have been cancelled due to Monica.
The NT capital was battered by Cyclone Tracy in 1974, which killed 71 people and left 20,000 people homeless.
Senior Bureau of Meteorology forecaster David Alexander said Cyclone Monica is far more dangerous than Cyclone Larry, which caused billions of dollars damage to the Queensland town of Innisfail last month.
"It's probably the best developed cyclone I have seen in many, many years," said Mr Alexander.
"It's got a perfect circular eye, it's right at the top of a category five range, so it's a very, very severe cyclone."
Police and emergency services have started evacuating residents in areas directly in Monica's path, including 200 residents from Goulbourn Island.
A police spokeswoman said residents were being evacuated by light aircraft to Jabiru and bussed to Pine Creek, with shelter facilities set-up by Emergency Services and the Australian Defence Force.
Mr Jackson has warned that Monica will be extremely dangerous and destructive when it slams into the north coastline of Arnhem Land, saying it may "quite possibly" be the most severe cyclone to ravage Australia.
"It's definitely the most intense to hit the Northern Territory ... it's worse than Tracy because it's a category five whereas Tracy was a category four," he said.
As Darwin prepares for the worst, Nhulunbuy residents have survived a night of strong winds and storms, with the worst of Cyclone Monica declared to be over for the town's residents.
As a category three cyclone, Monica hit Queensland just south of Lockhart River on Cape York on Wednesday last week, causing damage to about 15 per cent of homes and destroying large amounts of vegetation before moving to sea.
The storm has already disrupted commercial fishing, with many of the 75 prawn trawlers operating in remote off-shore regions heading for safety in port, national radio reported.
Mining operations were also hit, with uranium miner Energy Resources of Australia, majority-owned by mining giant Rio Tinto, shutting down its Ranger mine 250 kilometres east of Darwin.
US-based aluminium manufacturer Alcan closed its Gove refinery in north-east Arnhem Land on Sunday but reopened Monday after the storm missed the area.
Northern Territories Emergency Services Minister Paul Henderson has warned people to prepare cyclone kits including medicines, food and water, a torch and radio, while hospitals in Darwin are making contingency plans to cope with any casualties.