They may be unable to return to their homes for years - and there are fears that thousands more may be affected, newspaper reports say.
Two-hundred people were evacuated from the Brookland Greens estate a few days ago as it was felt the methane leak was reaching explosive levels.
The gas is in the substrata and could rise to the surface - near ignition points - at any time, Country Fire Authority chief officer Russell Rees said.
"I would suggest that this is a big problem," Rees said. "The best advice is for people not to be in their homes.
"There's a very real risk that that could cause an explosion.
"The reality is, what's been our concern from time to time is we've found gas in confined spaces in the explosive limit zone, in one instance well above."
Methane concentrations of between 5% and 15% were most dangerous, and worst in small, confined spaces including cupboards and wall cavities, Rees said.
Information handed out to residents said the Cranbourne Landfill was producing large amounts of landfill gas which was being extracted from the site and burnt in flares.
Some of the gas had escaped through cracks in the landfill surface or underground and into surrounding soil.
Once in the soil the gas travelled to the estate and had been detected on properties, in electrical pits and in the stormwater system at levels that "pose a safety risk."
A Department of Human Services fact sheet said exposure to methane gas could result in dizziness, headaches, visual disturbance, palpitations and confusion "eventually progressing to lack of consciousness or death".
However, it hastened to add, low level exposure to methane gas was unlikely to cause long term adverse health effects.
Some of the estate's residents defied warnings to evacuate their homes because they had nowhere to go.
Resident Jodie Gilmore said she first heard of the evacuation on the radio and that she was scared her children aged two, three and five would no longer be safe in their own beds.
"Their bedrooms are at the back of the house, nearest to the tip," she said. "If there is an issue, where the hell am I going to live?"
Mother of three Julie, who bought her house in December 2006, said moving from her home - about 400 metres from the tip - was not an option.
"Where would we go?"
She said she had heard of the leak from a neighbour, who rang in tears asking if they would have to evacuate.
"I had no idea about all this," she said.
Julie said her in-laws also lived in the area and she had nowhere to take her children, aged four-and-a-half months to six years.
"I'm concerned about the health effects on the kids," she said.
Julie said she also feared house prices would now drop. "No one's going to buy here and no one's going to compensate us," she said.
The president of the Cranbourne and District Residents Association, David Banner, said authorities did not have an evacuation plan or temporary housing.
He felt the estate should not have been allowed to be built in the first place.
Casey Council objected to developers building so close to the landfill, and foresaw a problem with methane gas leaking out of the site, but its decision was overturned at the Victorian Civil and Administrative Tribunal.
"Developers' interest in huge growth areas around the Casey corridor actually override a normal, logical, commonsense approach and VCAT itself has taken the issue out of community's hands,'' he regretted.
"Developers are getting their own way ... but once they've built it, once they've sold it and once they've moved on they've got the profit and the community and local council has to clean up the mess.''
He said residents who bought into the estate were ignorant of the problem at the time and some have only learned about it in the last week.
"The information they are getting ranges from an alarmist position, where you could suffocate or suffer explosions, and on the other side of it you've got people trying to placate it.''
Many of the estate residents are speaking with lawyers who are busy researching the history of the development.
The gas seepage may take as long as a year to bring under control, but Mick Bourke, chairman of the Victorian Environment Protection Authority (EPA), is confident it can be fixed.
"It's relatively straightforward and that's deceptive. [Step] one is you get equipment on that site and council are doing this, to capture more methane," he said.
"Secondly you reduce the perched groundwater table; and more importantly you put in a barrier on the boundary, some sort of barrier, whether it's physical, based on air flows or whatever that stops the methane leaving the site."
On Thursday the Victorian Government was offering the estate's residents an emergency assistance grant of just over $1,000.
On Friday, as the magnitude of the crisis gained more publicity that was increased to $8,000, but Brookland Greens residents want to know who is responsible for the crisis.
The developer of the Brookland Greens estate in Cranbourne has rejected suggestions it shouldn't have developed the land next to a former tip, which is leaking explosive methane gas.
Peet Limited boss Brendan Gore says the company's met all planning requirements since it purchased the land in 1998.
Gore says the firm remains concerned for residents' safety and is boosting security patrols to allay fears residents may have about leaving their homes.