The government announced the early closure along with a $200 million transition package for timber workers in Tuesday's budget.
It had planned to phase out native logging in 2030, but the industry will now be closed by January 1, 2024.
Logging activity has been hamstrung in recent months following legal action against state-owned forestry company VicForests for failing to protect endangered possums.
Treasurer Tim Pallas cited decisions from higher courts and sustained risk of continued third-party litigation as reasons for the date being pushed forward.
"We're going to deal with this sensitively. We don't take any satisfaction in this," Mr Pallas said on Tuesday.
"The advice we've got is that legally there is no way through this if the courts are used the way that they have been to frustrate the industry."
The government has allocated $50m in its 2023/24 budget for timber harvesting transition support, with a further $50m set aside each financial year until June 2027.
It also allocated $7.5m in 2023/24 for what it called timber worker and industry support, with another $7.5m in 2024/25.
A Victorian government spokeswoman said about 900 workers would be directly affected by the changes, including 366 sawmill workers.
Up to 560 would be supported into new employment in other industries such as land management, bushfire response or renewable energy, Mr Pallas said.
Workers and families will also get financial and mental health support.
VicForests posted a loss of $52.4m in the 2021/22 financial year as it navigated legal challenges, stand-down payments and compensation for failing to supply customers.
Agriculture Minister Gayle Tierney said the government had not taken the decision lightly, but uncertainty in the industry could not continue.
Australian Conservation Foundation campaigner and former forestry industry task-force member Jess Abrahams said the decision reflected the work of conservationists and concerned Victorians.
"Community groups have spent countless nights out in the bush, spotlighting for endangered species in forests earmarked for logging, then working with lawyers to stop the chainsaws," Ms Abrahams said.
"This decision shows people power at work."
Ms Abrahams called on NSW, Queensland, Western Australia and Tasmania to follow suit.
But Australian Forest Products Association chief executive Joel Fitzgibbon called the decision an unnecessary surrender to environment activists that would result in more hardwood being imported from Tasmania and NSW.
"That's no way to protect and conserve Australia's native forest estate or to halt global deforestation," he said.
Victorian Forest Products Association chief executive Deb Kerr called the decision disgraceful.
"It pre-empts court decisions, future court cases and prioritises budget interests over people's livelihoods," she said.
Forestry Australia president Michelle Freeman said strategies for managing the nation's forests had largely failed to secure the promised balance between environmental, social and economic values.
"Australia has a moral obligation to reduce its growing trade deficit in timber products by finding pathways forward to meet more of our own domestic demand locally," Dr Freeman said.
Australian National University forestry ecology professor David Lindenmayer said the end of Victorian native logging was the equivalent to preventing emissions from more than 700,000 cars and would be positive for jobs.
"A major workforce will be needed to build new tourism infrastructure, protect and then boost carbon stocks, tackle problems with exploding numbers of feral deer and develop elite fire-fighting crews to make rural communities safe," he said.
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