About 4000 cattle will be culled on farms infected with the disease Mycoplasma bovis, the Ministry for Primary Industries says.
Cattle from two of the seven known infected properties have already been culled. Culls on the remaining five farms would also go ahead, the ministry announced today.
The owner of the dairy group, Aad Van Leeuwen, did not want to talk to the media but told RNZ rural news he supported the ministry's decision.
He said he wanted to cull the animals as soon as he knew they were infected.
The move is supported by both DairyNZ and Federated Farmers, which said a cull was the only way to give farmers around New Zealand peace of mind that the infection would not spread.
DairyNZ chief executive Tim Mackle said farmers had been on "high alert" since the disease was first identified in July.
"DairyNZ is supportive of MPI's decision to step up control measures by culling these animals.
"However, we also know that the decision will create heartache for the affected farmers, and our sympathies are with all those involved."
Ministry director of response Geoff Gwyn said tens of thousands of tests have been done since July and the only positive results have been from the seven known properties.
"[This leads] us to be cautiously optimistic that we are dealing with a very localised area of infection around Oamaru."
After the animals were culled, the ministry would decontaminate and then re-populate the farms, Mr Gwyn said.
"We want to minimise the risk of further spread of the disease. Moving ahead with de-population of the affected farms will allow them to get back to normal business as soon as it is safe to do so."
The ministry would work with industry groups, the Rural Support Trust and others to support the affected farmers.
"The coming weeks will present new challenges and will be tough for these affected farmers," Mr Gwyn said.
"I'd like to particularly thank the owners, sharemilkers and farm workers involved for their ongoing support, recognising this is a very difficult time for them."
Most of the affected cattle would be sent for slaughter in accordance with standard practice, but all sites, transportation vehicles and equipment involved in culling would be strictly decontaminated and disinfected, he said.
The affected farmers would be able to apply for compensation under the Biosecurity Act.
Federated Farmers president Katie Milne said the discovery of the disease had "come at a significant emotional cost" to those farmers affected.
"The process of culling whole herds will be very stressful for the people concerned," she said.
"But the disease does not respond to treatment and cannot be vaccinated against. Culling is the only logical option to prevent ongoing suffering of the animals."