Premier Daniel Andrews said 671 new coronavirus cases had been detected since yesterday and seven more people had died.
Six of the deaths have a connection to aged care.
Andrews said there was an "unacceptably high" number of community transmission cases, and the state had 760 active "mystery" COVID-19 infections where the source of the transmission was not known.
"Those mysteries, that community transmission, is in many respects our biggest challenge and the reason why we need to move to a different set of rules," he said.
From 6.00pm tonight, a state of disaster will be declared across Victoria, which will act in addition to the state of emergency.
Andrews said the state of disaster gave police greater power and allowed authorities to suspend acts of Parliament.
An evening curfew will be implemented across Melbourne from 8.00pm to 5.00am every day, starting tonight, forbidding anyone from leaving the home except for working, receiving or giving care.
Melbourne residents will only be allowed to shop and exercise within 5km of their homes.
While supermarkets will remain open, only one person from each household will be able to shop at a time.
Exercise outside of the home will only be allowed for one hour at a time and recreational activities like golf and fishing will be banned.
Restaurants and cafes may continue to offer takeaway and home delivery, and bottle shops will remain open.
Overnight train services will be restricted.
Couples are allowed to visit each other if they live outside a 5km radius.
Weddings are banned except on compassionate grounds.
New restrictions to last for six weeks
Regional Victoria will move to stage three restrictions from Thursday, meaning restaurants, cafes, bars and gyms will close from 11.59 on Wednesday.
"That is not the position we wanted to be in but we cannot have a situation where this continues to grow and grow in regional Victoria," Andrews said.
He said this was important to prevent a situation where the virus transmission was driven down in metropolitan Melbourne but continued to grow in regional parts of the state.
All students across the state will return to home-based learning and childcare centres will be closed.
The Mitchell Shire, north of Melbourne, will stay on the same stage three restrictions it has been on for nearly three weeks.
The new restrictions will last until at least 13 September.
Andrews said the changes being announced today were about how Victorians lived their lives, but more changes would be announced on Monday about restrictions on workplaces.
Residents of Metropolitan Melbourne and the Mitchell Shire are almost halfway through what was meant to be a six-week lockdown under stage three stay-at-home orders.
Andrews said the current strategy undertaken by the government so far had avoided "thousands of thousands" of cases from overwhelming hospitals, but it was "not working fast enough".
He said after much detailed analysis, the state's health experts told him the current strategy would not see the state reach a point where it could reopen until the end of the year.
"Therefore we have to do more, and we have to do more right now," he said.