The Victorian government fast-tracked $2 million in February last year for a safety upgrade at the unguarded Pirron Yallock crossing near Colac and two other country crossings identified as dangerous, but they have not yet been upgraded.

There were nearly 100 people on the Warrnambool-bound train when it derailed  at the Phalps Road crossing about 3.45pm on Wednesday. 

Authorities have confirmed the truck driver, the train driver, a conductor and 16 passengers were injured in the smash. The 41-year-old male truck driver was airlifted to a Melbourne hospital in a critical condition.

Paramedics said eight of the injured crash victims had been taken to hospitals in Colac and Geelong.

The front carriages of the train were derailed and the truck's trailer hit a power pole, pulling power lines to the ground.

A police spokeswoman said investigators were examining the cause of the crash.

Sergeant Shane Howard told reporters at the crash scene that the 100 passengers on board the train "need to be buying tattslotto tickets this week".

"The opportunity [was] there for some extensive loss of life, but thankfully, everyone has come out alive."

The Minister for Public Transport, Jacinta Allan promised a full investigation into the circumstances that caused the crash, and said work had begun to upgrade the crossing.

"This is a traumatic and tragic incident and our thoughts are with everyone involved, their families and friends," she said.

The planned safety upgrade announced 16 months ago was part of the $50 million Safer Country Crossings program to boost safety at 52 priority roads and level crossings that carry high speed passenger trains or a high number of heavy vehicles.

Three crossings including the Phalps Road crossing were identified as particularly dangerous, with designs for the new crossings finished last year.

However, a government spokesman said construction was not scheduled to take place until next year.

The Public Transport Users Association said it was an accident waiting to happen.

"It's disappointing that there are still many of these passive level crossings in Victoria, particularly on passenger routes like the one to Warrnambool," the association's regional spokesman Paul Westcott said.

"It makes it even more tragic that this upgrade hasn't been provided in time to prevent this accident from happening."

The Standard reported that a Colac police officer has asked people to stay away from the crash scene on Phalps Road.

"The truck has been hit by the train going over the crossing and the truck's trailer has then hit power lines," the officer said.

He said the power lines are lying in water on the ground.

South-west resident Julia Thompson told The Standard she had been sleeping in her seat in carriage A at the back of the train at the time of the impact.

"I was shunted off my seat and a suitcase hit me in the face," she said.

"It felt like an earthquake. Everything was shaking and rocking.

"Then there was silence. Everyone was stunned."

Ms Thompson said the truck driver had been thrown through his front windscreen and was lying on the ground next to the train.

"I stood up with some trepidation ... and I could see the driver out my window," she said.

The first few carriages had been knocked off the rails, she said. It is believed there were four carriages on the train.

"The emergency crews were here very quickly," Ms Thompson said.

"A lot of farmers came up on their quad bikes to see if they could help. They were here within seconds."

She said everyone on the train had remained calm and people had helped each other off the train and called relatives.

A CFA alert, sent soon after 4.15pm, said smoke from the crash could affect people's health and warned residents to avoid the area where emergency crews were working.

"There are road and rail closures in the area and people are advised to avoid the area. Power lines are also affected," it said.

He said services on the line had been suspended and coach replacements would run to Warrnambool.

With Matt Neal