Prime Minister Kevin Rudd expressed concern at the Thai army stepping up its operations against Red-Shirt protesters on Wednesday.
"The security situation in Bangkok has deteriorated significantly this morning," he told reporters in Burnie, Tasmania.
"On the advice of the Department of Foreign Affairs and Trade, the government has raised the level of the travel advice to not travel to Bangkok."
That's the highest level of travel warning.
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It does not include Bangkok airport, which Mr Rudd said was still operational and where there were no disturbances.
Mr Rudd said the situation in the Thai capital was "fluid".
"The precise objective of the Thai Army activity is not known at this stage," he said.
"Troop numbers have increased, and more armoured personnel carriers have moved to the cordoned area, where the demonstrators are based."
Australia's travel warning for the rest of Thailand remains at the lesser level of "reconsider your need to travel".
DFAT has set up a crisis centre to deal with the latest situation.
Mr Rudd said it was believed there were about 20,000 Australians in Thailand.
Those in Bangkok are being told to consider leaving if it was safe to do so, otherwise stay indoors.
They should avoid any government or military buildings.
"It is now vital that Australians absolutely avoid any protest sites, or demonstrations, or military cordons," Mr Rudd said, adding they should have a plan to depart at short notice if needed.
Until Wednesday, the travel advisory for Bangkok was "reconsider your need to travel".
