The move follows hours of confusion after confirmation of a McLaren team member returning a positive COVID-19 test last night.
Spectators were denied entry to the circuit this morning, while competitive track action never started despite marshalling crews being in place and course cars and two-seater F1 cars lapping the circuit.
"At 9am today the Australian Grand Prix Corporation was advised by Formula 1 of their intention to cancel all Formula 1 activity at the Formula 1 Australian Grand Prix," read a statement from the AGPC. "In light of this decision and updated advice this morning from the Chief Health Officer of the Victorian Government’s Department of Human and Health Services, the Australian Grand Prix Corporation confirms the Formula 1 Australian Grand Prix is cancelled immediately.
"Last night a member of the McLaren Racing team tested positive for the COVID-19 virus. A further seven individuals returned negative results, confirming that they do not have the COVID-19 virus.
"Additionally, a ninth individual has been assessed and tested for the COVID-19 virus, with the results of this test pending. This individual is not associated with any Formula 1 team, the FIA or associated suppliers.
"Our first priority is the safety of everyone including attendees, our personnel, all event partners and members of the local community.
"Further information regarding refunds for ticket holders will be communicated in due course."
A statement from Formula 1 read: "Following the confirmation that a member of the McLaren Racing Team has tested positive for COVID-19 and the team’s decision to withdraw from the Australian Grand Prix, Formula 1 and the FIA convened a meeting of the other nine team principals on Thursday evening.
"Those discussions concluded with a majority view of the teams that the race should not go ahead. Formula 1 and the FIA, with the full support of the Australian Grand Prix Corporation (AGPC) have therefore taken the decision that all Formula 1 activity for the Australian Grand Prix is cancelled.
"We appreciate this is very disappointing news for the thousands of fans due to attend the race and all ticket holders will receive a full refund and a further announcement will be communicated in due course.
"All parties took into consideration the huge efforts of the AGPC, Motorsport Australia, staff and volunteers to stage the opening round of the 2020 FIA Formula One World Championship in Melbourne, however concluded that the safety of all members of the Formula 1 family and the wider community, as well as the fairness of the competition take priority."
The cancellation also affects Supercars, which was set to stage its second round of the season at Albert Park.
AGPC and F1 management will conduct a press conference at 11:30am local time to provide further information.
Even before the official confirmation, Mercedes publicly called on F1 and the FIA to call off the race.
“The Mercedes-AMG Petronas F1 Team has today sent a letter to the FIA and F1 requesting the cancellation of the 2020 Australian Grand Prix,” the statement read. “We share the disappointment of the sport’s fans that this race cannot go ahead as planned. However, the physical and mental health and wellbeing of our team members and of the wider F1 community are our absolute priority.
"In light of the force majeure events we are experiencing with regards to the Coronavirus pandemic, we no longer feel the safety of our employees can be guaranteed if we continue to take part in the event.
“We empathise strongly with the worsening situation in Europe, most especially in Italy, and furthermore we do not feel it would be right to participate in an event where fellow competitors such as McLaren are unable to do so through circumstances beyond their control.
“Our team will therefore begin pack-up preparations at the circuit this morning.”
Mercedes is understood to be planning early flights leaving Melbourne for its team members on Friday.