Since the first case of the highly pathogenic H5N6 virus was confirmed in mid-November, it has rapidly spread nationwide, leading to a record 16 million chicken and ducks being culled.
Previously, the worst outbreak to hit the South was recorded in 2014 when nearly 14 million birds were slaughtered.
"We raised the alert level to the 'grave level' in a bid to contain the spread of the avian influenza," Agriculture Minister Kim Jae-Soo said.
"We raised the alert level because of this reality in which we are witnessing the growing speed and infection rate of the outbreak," Kim said.
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The move can potentially cause a sudden hike in poultry and egg prices in Asia's fourth-largest economy.
Current egg prices are around 30 percent up from a year ago, Kim said, warning of a potential disruption in future poultry supply.
There have been no cases of human infections from H5N6 in the South, although the virus killed six people in China between 2014 and 2016.
The World Health Organization warned earlier this year that the strain has caused "severe infection" in humans.