Melbourne has brushed aside Vancouver, formerly ranked the world's most livable city for almost a decade, to take top spot on the 140-city list.
The Canadian city fell back to third position on the Economist Intelligence Unit's liveability rating, which quantifies the challenges that might be presented to an individual's lifestyle in 140 cities worldwide.Vienna, Austria, came in second.
"The general conditions required for a location to be awarded a high liveability ranking continue to be well reflected in Australian and Canadian cities," the report said.
"Some people may argue that violent crime is on an upward trend in the top tier of cities, but we believe that the figures should be put into context.
"Melbourne and Vancouver recorded murder rates of 2.9 and 2.6 per 100,000 population respectively in 2009. In Vienna, a city of 1.7 million people, only 18 murders were reported in 2010 (or about 1.06 per 100,000).
"These figures compare to a US average of 5.0 homicides per 100,000 people (2009), with New York City reporting a rate of 5.6 in the same year."
The Economist Intelligence Unit said there appeared to be a correlation between the types of cities that sit at the top of the ranking.
"Those that score best tend to be mid-sized cities in wealthier countries with a relatively low population density," it said. "This can foster a range of recreational activities without leading to high crime levels or overburdened infrastructure. Seven of the top ten scoring cities are in Australia and Canada, with population densities of 2.88 and 3.40 people per sq km respectively."
Other Australian cities in the top 10 included Sydney, which came in at sixth, Perth at eighth and Adelaide at ninth. The Canadian cities of Toronto (fourth) and Calgary (fifth) also made this year's list.
The report said that each city is assigned a score for over 30 qualitative and quantitative factors across five broad categories. These categories are stability, healthcare, culture and environment, education and infrastructure.
"In the Economist Intelligence Unit's latest survey for July 2011, a small adjustment in Vancouver's score for transport infrastructure, reflecting recent intermittent closures of the key Malahat highway, resulted in a 0.7 percentage point decline in the Canadian city's overall liveability rating," the report said.
"Vancouver's overall score could see further downward revisions in future surveys following riots in June this year. Although the riots came too late in the year to have an impact on the score of the current survey, further unrest may affect scores for the city in the future."