The outbreak in southern Brazil was identified at a farm supplying Vibra Foods, a Brazilian operation backed by Tyson Foods, according to two people familiar with the matter.
Vibra and Tyson did not immediately respond to questions.
Vibra has 15 processing plants in Brazil and exports to more than 60 countries, according to its website.
Brazil exported $US10 billion ($A16 billion) of chicken meat in 2024, accounting for about 35 per cent of global trade.
Much of that came from meat processors BRF and JBS, which ship to 150 countries.
China, Japan, Saudi Arabia and the United Arab Emirates are among the main destinations for Brazil's chicken exports.
Brazil's Agriculture Minister Carlos Favaro said on Friday China had banned poultry imports from the country for 60 days.
Under agreements with Japan, the UAE and Saudi Arabia, he said a trade ban would only restrict shipments from the affected state and, eventually, just the municipality in question.
The outbreak occurred in the city of Montenegro in Brazil's southernmost state of Rio Grande do Sul, the farm ministry said.
The state accounts for 15 per cent of Brazilian poultry production and exports, pork and poultry group ABPA said in July 2024.
BRF has five processing plants operating in the state.
JBS has also invested in local chicken processing plants under its Seara brand.
State officials said the outbreak of H5N1 bird flu is already responsible for the death of 17,000 farm chickens, either directly from the disease or due to cautionary culling.
Veterinary officials are isolating the area of the outbreak in Montenegro and hunting for more cases in an initial 10km radius, the state agricultural secretariat said.
Favaro, the farm minister, said Brazil was working to contain the outbreak and negotiate a loosening of trade restrictions faster than the two months agreed in protocols.
"If we manage to eliminate the outbreak, we think it's possible to re-establish a normal trade flow before the 60 days are up, including with China," Favaro said in an interview aired on CNN Brasil.
Chicken products shipped by Thursday will not be affected by trade restrictions, he added.
The ministry said in a statement that it was officially notifying the World Organisation for Animal Health.
Bird flu has swept through the US poultry industry since 2022, killing about 170 million chickens, turkeys and other birds, severely affecting production of meat and eggs.
Bird flu has also infected nearly 70 people in the US, with one death, since 2024.
Most of those infections have been among farm workers exposed to infected poultry or cows.
The further spread of the disease raises the risk that bird flu could become more transmissible to humans.
By contrast, Argentina was able to isolate a February 2023 outbreak and start resuming exports slowly the next month.
"All necessary measures to control the situation were quickly adopted, and the situation is under control and being monitored by government agencies," Brazil's poultry industry group ABPA said in a statement.
JBS referred questions about the outbreak to ABPA.
BRF CEO Miguel Gularte told analysts on an earnings call that he was confident Brazilian health protocols were robust and the situation would be quickly overcome.
Brazil, which exported more than five million metric tonnes of chicken products last year, first confirmed outbreaks of the highly pathogenic avian flu among wild birds in May 2023 in at least seven states.
The disease is not transmitted through the consumption of poultry meat or eggs, the Agriculture Ministry said.
"The Brazilian and world population can rest assured about the safety of inspected products, and there are no restrictions on their consumption," the ministry said.
