At least 100 families have contacted authorities over concerns their children were exploited.
Many victims were teenage boys, with the youngest aged just 14.
In many instances, overseas criminals impersonating young girls on social media struck up a rapport with their victims, sent them sexual images and coerced them into doing the same.
They then threatened to send the pictures to family and friends unless they paid them in gift cards, cryptocurrency or transferred money.
Many criminals still distributed the images even if they were paid.
Authorities believe the crime is under-reported due to fear, embarrassment or concerns victims won't be believed.
Investigators have asked anyone who thinks they or a family member may have been targeted to come forward immediately.
Detective Acting Inspector Carla McIntyre asked parents and carers to have age-appropriate conversations with children about this type of crime and how to seek help if they are targeted.
"Let them know how it happens, that it is frequently happening to children in Victoria - that it is not their fault and it is absolutely nothing to feel embarrassed about," Ms McIntyre said in a statement.
She said young victims often feel "psychological anguish" and parents should come forward as soon as something feels wrong.
"It doesn't matter how small or insignificant you make think it is - something that may appear small could later prove vital in an investigation," she said.
Lifeline 13 11 14
Kids Helpline 1800 55 1800 (for people aged 5 to 25)
Lifeline 13 11 14
beyondblue 1300 22 4636
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