Fuel production at a critical Australian oil refinery has significantly dropped after a major fire but tougher restrictions will not be introduced, the country's prime minister has said.

Viva's Corio refinery, near Geelong, is one of only two in Australia, which has been feeling the affects of a global oil supply crunch caused by the Iran war. It typically produces about 50% of the state's fuel and 10% of the nation's.

The fire, caused by equipment failure and beginning just before midnight on Wednesday, burned for 13 hours.

The government has warned the damage at the site may further impact fuel prices and reserves, but has urged calm.

"The advice... today is that 80 percent of diesel production is continuing, 80 percent of aviation fuel is ongoing," Prime Minister Anthony Albanese said.