Officials say people have been catching the virus from "fleeting" encounters in a Melbourne outbreak of the B.1.617.1 strain, now named the Kappa variant by the World Health Organization.
Australia's second most-populous state will now be locked down until 10 June.
It's the fourth shutdown endured by residents so far in the pandemic.
Six new local cases were reported on Wednesday, taking the cluster to 60.
"I know this is not the news that everybody wants to hear but given the cases we have... the government had no choice," said Acting Premier James Merlino.