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State Highway 1 at Awaraua, south of Invercargill, is blocked to traffic while firefighters battle to bring the fire under control.
Fire Emergency New Zealand (Fenz) senior media advisor Adriana Weber said the fire is being fanned by strong winds and by 5pm had spread from a pile of vegetation in to dry grass on Kekeno Place.
A "fertilizer works", directly across the highway from the fire, has evacuated as a precaution.
The ground crews include four tankers and one command unit.
Thick smoke is crossing the nearby Invercargill-Bluff Highway where a cordon is in place, being managed by police.
Diversion are at Tiwai Road, Awaraua School Road and Colyer Road, however, motorists were asked to avoid the area if possible.
The diversions were also not suitable for heavy vehicles.
Fenz is on high alert as the region experiences extremely dry and hot conditions, with temperatures reaching 33degC in some areas.
Fire crews and helicopters have been on standby across Otago and Southland as rising winds and low humidity levels create an extreme risk.
Firefighters are urging people to be extremely vigilant and avoid any activity which could spark a fire.