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The hospital was last night caring for 19 people who had Covid-19. They were among 38 such patients in the district.
Southland Hospital had originally planned to have about a dozen beds designated for people who were Covid-positive, but on Monday several cases were detected in various departments in the facility.
It was closed to visitors, a measure which remains as staff strive to contain the outbreak.
Just eight people in Southland Hospital were reported as having Covid-19 on Monday.
Southern District Health Board Southland general manager Simon Donlevy said there were now not enough beds available in Dunedin Hospital to take Southland’s overflow.
"Over the past six weeks or so, we have transferred approximately 15 patients to Dunedin in order to preserve our Covid beds and continue to allow patient flow," he said.
"We have not been able to transfer patients for the last 48 hours due to capacity issues that exist across the district."
Seventeen people in Dunedin Hospital have Covid-19, and one apiece in Lakes District Hospital and Clutha.
The outbreak in Southland meant visitor restrictions had to remain, although arrangements could be made on compassionate grounds, Mr Donlevy said.
"We understand that ongoing visitor restrictions may be distressing for patients and their families, and we thank you for your patience and understanding."
Perhaps signalling the possible cause of the outbreak, the SDHB yesterday asked anyone awaiting surgery who contracted Covid-19 to let their surgeon know.
Being Covid-positive near to or at the time of an operation could increase the risk of complications such as pneumonia and blood clots in the lungs, a spokeswoman said.
"Your surgical team need to know when your Covid-19 infection happened so that they can take this into account when balancing the risk of delaying the surgery with the risk of complications that could arise because of your Covid-19 infection."
Most operations were still safe following 4-8 weeks of recovery after contracting the disease.
Daily case numbers fell again in the South yesterday, for the fourth day in a row: there were 591 new community cases, down from 637 on Thursday.
Of yesterday’s new cases, Dunedin recorded 263, Invercargill 97 and Queenstown Lakes 67.
Waitaki reported 58 new cases, while other regions all recorded fewer than 40 new cases.
Nationally, 7800 new community cases were reported yesterday, as well as 17 deaths, none of which were in the SDHB area.