"The strain is deadly enough to kill the birds," Union Health Secretary Naresh Dayal said. "Our teams are already there. Now people will be monitored for flu-like symptoms."
It is the fourth outbreak of the strain in Indian poultry.
More than 18,000 chickens and other poultry have died in and around Margram village in West Bengal's Birbhum district over the last couple of weeks, officials have said.
A second outbreak has been detected in the district of South Dinajpur, also in West Bengal but not neighbouring the other outbreak, said Anisur Rahaman, WB's Minister for Animal Resources.
Dead chickens and even a few crows and owls are strewn across the landscape, according to health officials and television news pictures.
TV pictures also showed shirtless farmers picking up dead chickens with their bare hands and dropping them in shallow pits, some covering their mouths with cotton scarves.
In previous outbreaks, the virus has killed birds in the western state of Maharashtra on two occasions and broke out again in Manipur last August.
Although the strain can infect and kill humans, India has not reported any human cases so far. The disease has killed more than 200 people worldwide since 2003.
About 300 health workers in protective gowns and masks are going door to door to check villagers for fever and other symptoms.
For now, humans usually contract the virus only after close contact with infected birds, with the virus killing nearly two-thirds of the people it infects.
But experts worry it may mutate into a form easily transmitted from person to person, leading to a pandemic.
Around a fifth of humanity could fall ill should there be another flu pandemic, according to estimates cited by the World Health Organisation, with catastrophic effects on the global economy.