A property at Crowther, 30km south east of Grenfell in New South Wale's Central West, has been quarantined after positive test results from one horse for equine influenza.
A restricted area has been declared around the infected property and the status of the area has been changed from an amber to a red zone.
NSW deputy chief veterinary officer Steve Dunn said part of the green zone near Booroowa and Binalong had been changed to amber to maintain an adequate buffer between the infected property and the green zone.
"Horse owners in the area which has changed from green to amber will no longer be able to move their horse with only a travelling horse statement," Mr Dunn said.
"They will need a permit from the Rural Lands Protection Board to move only within the amber area."
NSW Department of Primary Industries surveillance teams are tracing movements to identify any other infected horses in the area. There are currently six infected properties in the Grenfell and Crowther cluster.
The Department of Primary Industries has deployed vaccination teams to begin creating a vaccination buffer to stop the disease spreading south.
"We are mounting a swift response to this cluster of infection," said Mr Dunn.
Authorities had already been working to contain the Grenfell outbreak when the Crowther case came to light.
The Primary Industries Department, in its daily update, said the Crowther outbreak had been in horses moved from Grenfell. It did not say when the horses had been moved.
The number of infected properties in NSW stood at 5423 yesterday, with 453 considered "dangerous contact" and 516 official "suspect". To date, 16,532 of 23,921 horses have been vaccinated.
In Queesnland, the number of infected properties stood at 2164.