Premier Daniel Andrews said the government would introduce the ban later this year, to protect the state's valuable farming sector, which earned billions of dollars in exports each year and employed nearly 200,000 people.

"We've listened to the community and we're making a decision that puts farmers and our clean green brand first," he said.

South Gippsland resident Deborah O'Connor said she was "thrilled" with the government's decision.

"For once, farming trumps mining," she said.

Ms O'Connor, a school teacher and a beef cattle producer from Berrys Creek, also said: "I'm absolutely delighted at what the government has had the courage to do."

"It would not have been an easy decision ... They had to stand up to the gas companies and the energy resource companies and I think that was a very brave thing to do."

The ban represented a really important decision for regional communities, tourism and the environment, the premier said.

"We've got something very special across our state, and we're not going to risk it by virtue of dangerous, very, very dangerous practices such as fracking."

"Fracking", or hydraulic fracturing, is the process where liquid - which can be a mixture of water and chemicals - and sand is pumped into a gas well under high pressure to fracture the surrounding rock and release the gas.

A state parliamentary inquiry into the industry last year received more than 1600 submissions, most opposing fracking.

The government announcement was immediately welcomed by the Victorian Farmers Federation and campaigners who oppose the development of unconventional gas exploration.

But it was blasted by the Australian Petroleum Production and Exploration Association, which said the state government had played politics.

"Every independent, scientific inquiry confirms that, properly regulated, unconventional gas is safe," the association's chief executive Dr Malcolm Roberts said.

"Activist fear campaigns can create confusion and uncertainty in the community but our political leaders have a responsibility to rise above such campaigns and support an honest, factual debate.

"The decision today is short-term politics that will leave Victoria exposed to unnecessarily high energy prices."

But Mr Andrews said the decision was "just common sense".

"This is the first ban of its kind anywhere in our nation, and it just speaks volumes to the dangers, the uncertainty and the anxiety within the Victorian community about fracking."

However, the government has left open the possibility of an onshore "conventional" gas industry which did not use fracking, in future years.

The government will introduce a bill to extend the moratorium on onshore conventional gas exploration and development until 30 June 2020.

Mr Andrews said extensive technical, environmental and scientific studies on the risks, benefits and impacts of onshore gas would be undertaken before a decision was made.

This work would examine "how much is there, what's involved in getting it out of the ground, [and] can it be done safely", he said.

"The government's decision is a win for Victorian farmers, who have been calling for an on-going ban on all forms of onshore gas development until at least 2020," said the VFF's Gerald Leach.

Ursula Alquier, from Lock the Gate, said: "Labor has shown real leadership by listening to community concerns. The Andrews government has shown us today that they are unwilling to risk Victoria's strong agriculture and tourism economy," she said.

But one of the Labor Party's largest affiliated unions, the Australian Workers Union, has warned the Andrews government against banning conventional onshore gas exploration and extraction.

AWU state secretary Ben Davis said the onshore conventional gas moratorium would trigger an "exodus of investment and jobs from Victoria."

"Given the declining state of our manufacturing sector, we need conventional gas to continue as an industry in its own right and as a reliable and affordable source of energy," Mr Davis said.

"We cannot keep on closing doors and expect jobs to magically appear from nowhere."

Greens energy spokeswoman Ellen Sandell said: "The fracking ban is a relief, but it's disappointing the government is leaving the door open to conventional gas drilling after the next state election."

Opposition Leader Matthew Guy said the Coalition had proposed a moratorium on fracking in September last year.

"This is nothing new," he said.