Officials wearing masks and protective suits piled dead chickens into black plastic bags at a wholesale market in Hong Kong where the virus was discovered on Monday.
"It (the culling) has started. It begun at around 10am," an Agriculture, Fisheries and Conservation Department spokesman said.
The chickens would be given a "chemical treatment" to kill them, after which they would be sent to landfill, the spokesman said.
The culling operation is set to last for ten hours.
The positive H7N9 reading was discovered in chickens at Cheung Sha Wan market on Monday, which will be closed for 21 days until February 18 cleaning and disinfection.
"Agriculture, Fisheries and Conservation Department officers will inspect all the local chicken farms and collect more samples for testing to ensure that local farms are not affected by H7 avian influenza," secretary for food and health, Dr Ko Wing-man, said in a statement.
Cheung Sha Wan is the only wholesale poultry market in Hong Kong and is a holding centre for chickens awaiting test results.
Chicken supply to markets from local Hong Kong farms have also been suspended.
The discovery of the avian influenza virus came just days after Hong Kong introduced widespread testing of imported live poultry following growing public concern over the safety of imports, particularly from the mainland.
Fears over the virus have grown following the deaths of two men in Hong Kong since last December.
Live chicken buying tradition questioned
Hong Kong leader, Leung Chun-ying, has called into question the tradition of buying live chickens for fresher meat.
"In the long run, should we keep the customs of eating live chickens? Hong Kong people should look into this issue," he said.
Mr Leung advised the public to be vigilant and "pay heed" to government guidelines on personal hygiene.
HK government "fully responsible"
Local chicken farmers and wholesalers have questioned why chicken imports suspected to contain viruses had not been detained at border check points.
"The government should be held fully responsible," wholesaler Cheng Chin-keung told the South China Morning Post on Tuesday.
"It should have stopped the chickens at the border until they were confirmed to be clear of bird flu.
"Now the chickens from China get mixed with local chickens in the wholesale market and all of them have to be culled."
Mr Cheng said he would lose $US650,000 ($HK5 million) from the culling.
A government spokesman said the chickens were sent to Cheung Sha Wan rather than being held at the border because there were no facilities for detaining them.
The H7N9 outbreak began in China in February 2013 and reignited fears that a virus could mutate to become easily transmissible, potentially triggering a pandemic.
A 65-year-old Hong Kong man with H7N9 died on January 14 while an 80-year old man died on Boxing Day last year after he was infected with the virus.
A third patient is currently being treated in Hong Kong.
All three were infected during visits to the neighbouring Chinese city of Shenzhen.
According to the Chinese Centre for Disease Control and Prevention, 19 people have died of the flu in China this year.
China's Health and Family Planning Commission reported a further nine cases of H7N9 bird flu to the World Health Organization on Sunday and Monday.
Hong Kong is particularly alert to the spread of viruses after an outbreak of Severe Acute Respiratory Syndrome (SARS) swept through the city in 2003, killing 299 people and infecting around 1,800.
The city culled 17,000 chickens in December of 2011 and suspended live poultry imports for 21 days after three birds tested positive for the deadly H5N1 strain of bird flu virus.