Aerial surveillance detected more than 1000 dead crested terns on remote islands off South Australia, Premier Peter Malinauskas said on Thursday.
On King Island off Tasmania, 28 dead penguins were also discovered, a week after confirmation of the state's first bird flu case.
"The loss of more than 1000 birds is deeply concerning and the state government is treating these events with the utmost seriousness," Mr Malinauskas said on Thursday.
There was also the disconcerting news of a suspected flu death involving a little penguin on Kangaroo Island, he said.
SA authorities were seeking approval for a vaccination program for penguins and potentially other species, including the black-bellied parrot, the premier said.
The vaccinations, which require two separate injections, would initially be focused on captive animals, such as those at Adelaide Zoo and Cleland Wildlife Park, but there was no timeline on its rollout.
The island deaths were detected on Wednesday at North and South Page Islands off Kangaroo Island, and Troubridge Island, off Yorke Peninsula.
SA has 177 confirmed bird flu events, the most of any state.
NSW authorities on Thursday reported two H5 events, involving seven birds.
Six infected greater grested terns and one diseased giant petrel were discovered at Narooma and Merimbula, on the state's south coast.
SA primary industries department biosecurity chief Georgie Cornish said bird flu reporting had moved from individual cases to events to make sure people understand how it is moving across the landscape.
The mass island deaths were in areas where events had already been reported, and there were also seven new events in SA reported on Thursday.
They involved greater crested terns in the Barossa Valley, Eyre Peninsula and at three locations in Adelaide, as well as a silver gull on the Fleurieu Peninsula, and the first reported case in SA of a raven with bird flu, on the Limestone Coast.
Mr Malinauskas said no mass deaths had been reported in mammals and bird flu had not been detected in poultry or livestock.
"The first sign of detection in any poultry facility means we've got to get in there and terminate those birds immediately," he said.
"In other parts of the world … it has had an impact on the price of chicken meat and on the price of eggs … so any way that you can mitigate the spread, mitigates the consequence."
In Tasmania, specialist teams had been sent to King Island after 28 penguins and three crested terns were discovered at the Port of Grassy.
The animals were being tested for H5 bird flu, Tasmanian Premier Jeremy Rockliff posted on social media.
"While that testing happens, further teams are being surged to the area," he said.
Tasmania has 11 confirmed bird flu cases since the virus was first found in the state on August 13 at Rocky Cape, on the northwest coast.
Natural Resources and Environment Tasmania incident controller Wes Ford said it was important to note there was no evidence of mass mortality.
"There have been no detections of H5 bird flu in Tasmanian poultry, and chicken and eggs remain safe to eat," Mr Ford said.
The Invasive Species Council said the mass death indicated bird flu devastation was becoming very real.
"This is a sad day for Australian wildlife, but it is only the start of the scale of deaths we can expect in the months ahead as the virus spreads," council chief executive Jack Gough said in a statement.
"This is why we have been calling for urgent investment to protect our wildlife from other threats like foxes, cats and habitat destruction."
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