Almost one-in-three bottle shops visited in Victoria contained suspected illicit alcohol products, researchers from the National Drug and Alcohol Research Centre, UNSW and National Drug Research Institute found.
The team have since gone to over 200 stores across different socio-economic areas in NSW, Victoria and Queensland to find the same proportion of bottle shops stocking suspected illicit alcohol.
"We're finding regular bottle shops are stocking products that we suspect are illicit, and we've found that have contaminants in them," postdoctoral research fellow Michala Kowalski told AAP.
People might be lulled into a false sense of security thinking their product is legitimate because they've bought it from a regular bottle shop, but the risks could be deadly with researchers finding methanol and plastic debris in some products.
"Methanol, if you have it at a high enough concentration, can actually cause poisoning which can cause seizures, blindness and even be fatal," Dr Kowalski said.
The researcher said methanol concentrations in products they tested were lower than the deadly threshold.
"But finding it at all is a really big concern about product quality, and we don't know what's out there in other products," she said.
Plastic particles have also been found in some bottles, which have been linked to cancers.
Illicit alcohol has been seized at Australian borders from overseas markets, but Dr Kowalski said some products tested in the research were locally manufactured.
The research comes as Melbourne faces a firestorm of arson attacks on its nightlife precincts, with Victoria Police investigating illicit alcohol as one possible motivation behind the firebombings.
"We're getting a lot of information from the public, from industry, in relation to some of the complexities of the alcohol industry, in terms of illicit alcohol, homemade alcohol, and the like," Detective Superintendent Jason Kelly said.
Industry insiders believe the attacks on the city's nightlife hotspots are linked to underworld figures battling to take control of the growing illegal alcohol trade.
A well-known industry source, who spoke on the condition of anonymity, said Melbourne was at risk of another tobacco war as criminal figures strong-arm hospitality venues into using their illegal product.
"It all relates to stupidly high government excises and taxes on alcohol," the source, who asked not to be named out of fear of retribution, told AAP.
"Now that there is so much money in selling this cheap overseas tax-free alcohol ... criminals and bikies have got involved just like they did with white packet cigarettes and vapes when the government over-taxed real cigarettes."
Dr Kowalski said a whole-of-government response is needed to address the problem, including regulatory changes and enforcement, and tax policy alone would not solve the issue.
"If you continue raising (taxes), that it could cause more growth (of the illicit market), but that the flip side isn't necessarily true because it's already so well established," she said.
Consumers could reduce their risk by sticking to their trusted brands and shops, keeping an eye on prices that don't make sense, and paying attention to bottle quality, including missing pregnancy warnings or barcodes on labels.
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