All elective surgery other than the most urgent procedures will be put on hold to free up capacity in hospitals dealing with coronavirus.
State and federal leaders have agreed to indefinitely suspend all category three and most category two surgeries from midnight.
The cancellations will apply to both public and private hospitals.
The move would also help free up resources needed by healthcare staff, the prime minister told reporters in Canberra on Wednesday.
"This will allow the preservation of resources like personal protective equipment and health services to prepare for their role in the COVID-19 outbreak," Scott Morrison said.
The decision was quickly welcomed by the Australian Society of Anaesthetists.
"The only way Australian hospitals can effectively prepare for an influx of patients is if we have the time to devote resources to this preparation," president Suzi Nou said.
"We believe that the health system is not yet ready to cope with the likely massive demand for our services."
But Dr Nou said this was just the start and further action with containment measures would be needed.
A nurse takes a sample at a drive-in coronavirus testing station in Adelaide. Source: AAP
Category one and two surgeries are classified as urgent and semi-urgent respectively, while category three surgeries are recommended to take place inside a year.
Mr Morrison said only urgent category two cases would be allowed for surgery.
Before the prime minister's announcement, Australian and New Zealand medical colleges warned unnecessary surgeries were soaking up precious resources needed to fight the pandemic.
The prime minister also announced the formation of a new National COVID-19 Coordination Commission to help guide the government's response to the pandemic.
The commission, to be chaired by former Fortescue Metals CEO Neville Power, will be tasked with solving problems such as ensuring supply to supermarkets and redeploying call centre staff to Centrelink.
