The approach of Krathon grounded hundreds of flights and closed schools, offices and financial markets.
Officials in the key port city of Kaohsiung, set to be in the eye of the storm, told people to stay home and avoid the sea, rivers and mountains, warning of a repeat of 1977's Typhoon Thelma that killed 37 and devastated the city of 2.7 million.
Although the typhoon has weakened, the threats from a storm surge, strong winds and rain remain as it slowly makes its way towards Taiwan's coast, weather forecasters said on Wednesday.
The typhoon would lose power once it hit land, said Kaohsiung Mayor Chen Chi-mai, but would still bring intense winds and rain.
"But if it moves north, the winds will strengthen again, so the threat to Kaohsiung will continue to exist, and people cannot take this lightly," he told reporters.
Almost 250 international flights were cancelled ahead of the approaching storm. (AP PHOTO)
Once it hits land, the typhoon could be downgraded into a tropical depression and dissipate, which has happened only once before in Taiwan, in 2001, forecasters said.Â
That storm, called Trami, dumped vast amounts of rain leading to massive flooding.
The fire department reported one person dead, an elderly man in the eastern county of Hualien who fell from a tree, with two others missing and 70 injuries.
All the island's cities and counties declared a day off on Wednesday, shutting financial markets and cancelling domestic flights, along with 246 international ones, while more than 10,000 people were evacuated, mostly in the south and east.
In Taipei some malls and shops remained open, with rain only expected later in the day.
Typhoons often hit Taiwan's mountainous and sparsely populated east coast facing the Pacific, but Krathon is set to make landfall on its flat western plain.
It is forecast to hit between Kaohsiung and its neighbouring city of Tainan in the early hours of Thursday, before heading northeast up towards Taipei, the Central Weather Administration said.
Taiwan's defence ministry said it had put more than 38,000 troops on standby.
The north-south high speed rail line stayed open, but scaled back services.
TSMC, the world's largest contract chipmaker and a major Apple and Nvidia supplier, said on Tuesday it did not expect the typhoon would have a significant impact on operations.
TSMC's factories are along the west coast, some in the city of Tainan.
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