A report says Hurricane Grace had maximum sustained winds of 125 mph (205 kph) early on Saturday.

Hurricane Grace slammed into Mexico for a second time early on Saturday as a major Category Three storm, threatening to bring significant flooding and mudslides, US forecasters said.

The storm had lost power while crossing over the Yucatan Peninsula on Thursday, swirling through Mexico's main tourist strip, but it rapidly drew in power from the relatively warm Gulf of Mexico as it moved toward the country's mainland.

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The Miami-based center warned of a dangerous storm surge, with water levels as much as six to nine feet (1.8 to 2.7 metres) above normal tide levels along the immediate coastal area where the storm made landfall.

The US National hurricane Center said Grace had maximum sustained winds of 125 mph (205 kph) early Saturday when it made landfall about 30 miles (55 kilometers) south-southeast of Tuxpan. It was heading west at 10 mph (17 kph).

The strong waves reach the Island of Sacrifices due to Hurricane Grace in Veracruz, Mexico. AFP

Before Grace made landfall, President Andres Manuel Lopez Obrador urged people in five states to seek shelter.

Lopez Obrador said on Twitter that thousands of civil protection forces, the defense ministry and the navy, as well as state utility Comision Federal de Electricidad (CFE) were prepared.

"I ask the people of the regions of Veracruz, Puebla, San Luis Potosi, Tamaulipas and Hidalgo to seek refuge in high places with relatives and in shelters that are being set up," Lopez Obrador wrote.

The storm made landfall near Tecolutla in Veracruz state, clocking maximum sustained winds of 125 miles (200 kilometers) per hour, according to the US National Hurricane Center (NHC).