Beachgoers have been advised to avoid swimming at some Melbourne beaches, despite the sunny weather, after the Environmental Protection Authority was alerted to an oil spill.

Swimmers and paddleboarders reported emerging from the water covered in an oily substance at Elwood Beach on Thursday, with other locals reporting dead fish and large quantities of oil on the surface of the local canal, Elster Creek, which runs into the bay nearby.

On Friday, EPA Victoria issued a water quality alert for Elwood, St Kilda, Middle Park, South Melbourne, Port Melbourne, Sandridge and Williamstown beaches, advising the public to avoid contact with oily water and sand.

Large signs erected on the foreshore advised beachgoers not to swim.

Some paddleboarders and a few swimmers were still entering the water on Sunday morning at the popular St Kilda and Elwood beaches, despite the signs.

Beachgoers were advised to avoid swimming at multiple Melbourne beaches this weekend. Photograph: Stephanie Convery/The Guardian

Tests on Saturday morning revealed the substance to be vegetable oil – mostly palm oil – commonly used for cooking. It “presents no hazard to human health but is still unpleasant for beachgoers and can harm some wildlife,” the EPA said in a statement.

Authorities initially held fears the spill could harm the little penguin colony at St Kilda Breakwater, calling in Zoos Victoria to assist. Guardian Australia understands the welfare of the colony has been secured.

The dead fish in the local canal and near the beaches have not been definitively linked to the oil spill but investigations are ongoing.

The source of the contamination remains unknown, but the volume of oil that made its way into the bay was substantial, suggesting it was likely from a commercial source.

Due to the age and complexity of the stormwater system in the area, identifying the source of waterway pollution can be a difficult task, requiring water quality testing in surrounding suburbs to narrow down the source.

On Sunday morning, the water quality at South Melbourne, Port Melbourne and Sandridge beaches was upgraded to good. Early on Sunday afternoon, water quality at Elwood and St Kilda was upgraded from poor to fair.

The EPA urged members of the public to report pollution via its 24-hour hotline or on its website.

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