Dr Mark Schipp spoke to AAP from the Riau province in Indonesia, which reported its first outbreak of lumpy skin disease earlier this month.
Dr Schipp says the threat posed to Australia will be revised up after observing "the enormous challenge" Indonesia faces in distributing a vaccine.
The chief vet is due to hold further talks with Indonesian officials later this week where his advice will be that vaccines are distributed more widely throughout the country.
The disease which is not in Australia, can kill cattle and buffalo.
It is spread by insects like mosquitoes and can cause fever, depression, weight loss, and infertility. It does not pose a risk to human health.
Dr Schipp warns it's "quite likely" the disease will spread out of Riau province in Indonesia, with the potential to spread to Timor Leste and could be carried by insects "directly into Australia."
He says if that happens the "very serious disease" could have "significant economic impacts" for the Australian and Indonesian beef industries.
"Our concern is that ... it could be carried by wind through insects directly into Australia," he says.
Dr Schipp says the confirmed numbers in Indonesia of infected cattle is currently only a couple of hundred animals, but many are difficult to access.
A large feedlot industry of Australian animals in Indonesia, with tens of thousands of animals in the one location, also increases the risk of the disease spreading.
Last year a team of experts determined the threat of LSD entering Australia sat at eight per cent, with Dr Schipp saying that figure will now be revised up.
The National Farmers' Federation says Lumpy skin disease poses "significant concerns" to Australia's beef, buffalo, dairy and live export industries.
While the Cattle Council of Australia will meet this week to discuss a possible incursion of LSD into Australia.
CCA President Markus Rathsmann has described the threat of Lumpy skin disease entering Australia "as the most crucial biosecurity policy decision" the livestock industry has faced in decades.
Mr Rathsmann says if the disease does arrive here it would "shut down much of our live export and boxed beef markets".
