The Warrnambool woman, 77, was badly hurt in the crash at the intersection of Mortlake Road and Wollaston Road and died of her injuries soon after.

Investigators believe the woman was the driver of a Honda sedan which was travelling east on Wollaston Road when it collided with a white Nissan Dualis headed north on Mortlake Road.

Emergency services were called to the scene just after 3.30pm.

The driver of the Honda was taken to Warrnambool Base Hospital, where she died a short time later.

Her passenger, an 84-year-old Warrnambool woman, was taken to the base hospital with serious injuries.

The driver of the second vehicle, a 22-year-old Warrnambool woman, was also treated at the hospital for minor injuries.

Police will prepare a report for the Coroner.

The driver of the Honda was trapped in the badly damaged car. State Emergency Service members had to cut off its roof to free her from the wreck.

Acting Sergeant Deane Owen, of Warrnambool police, said the accident appeared to have been the result of a failure to give way, but investigations were continuing.

Both vehicles were extensively damaged in the accident, which blocked busy Mortlake Road for more than an hour. Traffic was diverted along Whites Road until the scene was cleared.

Wollaston Road resident Chris Hiensch said the accident was the third or fourth he knew of at the intersection in the past 18 months.

"This is definitely the worst," Mr Hiensch said. He said it emphasised the need for traffic lights at the intersection, which nearby residential development had made increasingly congested.

VicRoads and Warrnam bool City Council have slated the intersection for traffic lights but no time frame has been set yet for their installation.

The fatality took Victoria's road toll to 213, compared to 261 at the same time last year.

ehimmelreich@fairfaxmedia.com.au