Santa Barbara, with its idyllic climate and lush countryside, is often referred to as the American Riviera.
Since Wednesday, the fire has moved ever nearer to the seaside town.
TV pictures have shown flames destroying several large hillside properties in the exclusive region.
'Extreme weather'
"We really can't do any containment lines. It's too dangerous," Capt David Sadecki of the Santa Barbara Fire Department told the Associated Press news agency.
Firefighting crews have been reinforced, with some 2,300 firefighters tackling the blaze, which has blackened at least 2,700 acres (1,100 hectares).
The flames have been fanned by record temperatures and strong winds of up to 50mph (80km/h), and fire officials are worried about unpredictable local "sundowner" gusts of wind, often seen at sunset.
In declaring a state of emergency, Mr Schwarzenegger has released funds to pay for the fire fighting effort.
"This fire has been a great challenge, there's no two ways about it," he said.
"The 50mph winds, the lack of access to the terrain and the dense brush - all this creates great challenges."
Weather forecasters say that after a lull, the winds are likely to pick up again, the BBC's Peter Bowes in Los Angeles reports.
Exhausted firefighters will be tackling this blaze well into the weekend, our correspondent says.
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