"All horse racing, and the thoroughbred and horse industry across Australia, in all of its sectors and components, could be affected in the worst-case scenario," said Agriculture Minister Peter McGauran.
"But we won't allow ourselves to even consider the worst-case scenario because we are working to contain it - otherwise the worst-case scenario will eventuate."
Equine flu is highly contagious but cannot be passed to humans. McGauran believes the infection spread from Japan where 29 cases have been reported. There is a ban on race meetings in Japan and a ban on moving horses to prevent the virus spreading.
Eighty local and foreign horses in quarantine in Australia are being monitored for the viral disease. "We're taking no chances - an iron curtain has fallen," McGauran said. "No horse will be leaving the quarantine premises until we're completely and absolutely beyond any shadow of a doubt certain that there's no risk of contamination."
The stallions being held are among the world's most valuable because they flit from country to country servicing mares. Australia has so far been free of the virus. The minister said a nationwide immunization programme was a possibility.