Australian police have charged a man with arson causing death in connection with one of the country's deadly bushfires.

The fires, which broke out last week, have destroyed 1,831 homes, made 7,000 people homeless and left at least 181 dead.

The unidentified man was also charged with intentionally or recklessly lighting the fire near the town of Churchill in the southern state of Victoria last Saturday.

A police spokesman said 21 people died in the fire.

Prime Minister Kevin Rudd has described Australia's deadliest bushfires as 'mass murder'.

The man, who was arrested this morning, did not appear in court when the charges were laid. Police told the Morwell Magistrates Court the man was in a fragile mental state.

The court ordered a suppression order on the man's identity and ordered that he be assessed by a psychologist.

The man was transferred from rural Victoria to Australia's second largest city of Melbourne for his own safety and will reappear in Melbourne Magistrates Court on 16 February.

In Victoria, arson carries a maximum penalty of 25 years, with the bushfire charge carrying a maximum penalty of 15 years.

Authorities say the bushfire death toll is expected to rise beyond 200 as more bodies are discovered in the remains of houses.

One razed town, Marysville, sealed off to the public due to the horrific scenes there, may contain 50 to 100 more dead, authorities say. That would bring the toll to around 300.

Police detained two men yesterday but later released them.

Thousands of firefighters are battling blazes in Victoria, with some 20 fires still burning, many out of control. A number of public schools across the state were closed today due to the bushfire threat.