"Residents need to act to protect life, leave now and move to higher ground," the council said in a statement.
"Those evacuating have been urged to leave immediately and stay with family and friends in a safe area."
An evacuation centre has been set up at the Warwick Christian College at 70 Horsman Rd, Warwick.
The Courier Mail reports that firefighting and SES crews were at the dam to try and patch up the leak after it first overflowed. However, the dam burst again, resulting in more crews and senior officers attending the scene to deal with the flow of water.
Parts of the Darling and Southern Downs have experienced recent heavy rainfall.
Southern Downs mayor Tracy Dobie said she was confident people in the dam's path would get out in time.
"The land is really flat so the water will just go out over that land and by the time it has got a bit downstream, it will have dissipated," she told the Chronicle late on Friday night.
"I have confidence in the people who live there. This is their land, they know what happens and they will do the right thing and know where to go."
