Friends of Scotchman's Creek and Valley Reserve watch co-ordinator Tony Walker said for about the past 18 months the group had noticed a smell and oil slick on the surface of the water that was having a "significant" impact on the creek.

He said plants and insects had been affected by the spill, especially dragonflies and damselflies whose larvae grew in the creek.

It wasn't a single spillage but more likely a slow seepage, he said.

"It became unpleasant to walk along parts of the creek because of the smell and secondly it was affecting water vegetation.

"The vegetation will grow back but it will take at least a year or possible longer because there is a lot of oil in the sediment at the bottom of the creek and the vegetation will need to regrow before the little animals will return."

EPA pollution response manager Dan Schmidt said officers inspected stormwater drainage systems in the area to determine the source.

"Officers were able to isolate the problem and identify the material as transformer oil. EPA is currently working with a company which is cooperating with our investigation.

"On the weekend, that company engaged contractors to clean up and remove oil from the creek.

''Given that historically transformer oil may contain polychlorinated biphenyls (PCBs) and recent test results have confirmed the presence of PCBs, there is understandably some concern about any residual impact on the environment.

"EPA is working with the Department of Human Services, Melbourne Water and Monash City Council to ensure all concerns are addressed.''