The spill, behind a seafood company at George Town in northern Tasmania, occurred on Thursday morning and was contained by the afternoon.
It prompted a brief evacuation of South George Town Primary School and a 500-metre exclusion zone.
George Town fire brigade chief Andrew Taylor told reporters the spill happened behind George Town Seafoods and involved a 900-litre drum and a forklift.
It involved formic acid, which is used widely in textiles and agriculture, the state's department of police, fire and emergency management said.
Formic acid can cause burns if touched.
The acid has been diluted and flushed through drainage systems into the Tamar River after consultation with the state's environmental regulator and local council.
"As recommended by the (regulator), we will continue to flush water through the system for a further four hours to make it safe," the department said.
The department advised people to avoid contact with the water, even though the acid had been diluted.
The regulator, which has been contacted for further comment, will conduct ongoing monitoring.
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