Torquay residents stranded for second night over fears of dam collapse

More than 100 Victorian residents will spend another night away from home amid fears a nearby dam could collapse.

Homeowners in Torquay were told to evacuate their homes around 2am this morning, after authorities found that a nearby dam was leaking.

There was a risk that the walls could break, potentially send 180 mega litres of water through a nearby estate.

The SES evacuated around 100 residents from 40 homes adjacent to the dam.

The cause of the leak is still unknown and dam engineers are currently working to ensure the site is safe.

Anne Howard, Acting CEO of the Surf Coast Shire Council, told 9News in a statement that the location of the dam would have been factored in before the housing estate was built.

"The proximity of the houses to the dam would have been considered at the time the development was approved," Ms Howard said.

"This is a licensed dam and is subject to construction standards and monitoring by Southern Rural Water."