The weather observatory said the storm would pass within 100 kilometres of Hong Kong tomorrow, "posing considerable threat" to the territory.
It warned of strong winds, rough seas and possible flooding due to heavy rain.
Flag carrier Cathay Pacific said almost all its flights between 6:00 AM and 5:00 PM local time tomorrow would be axed.
Hong Kong Airlines has also cancelled all its flights from 7:00 AM to 5:00 PM and other carriers have already posted cancellations to their schedules.
"As typhoon Hato gradually approaches, flights at the Hong Kong International Airport will be affected all day tomorrow," it said.
Cathay said wind speed and direction was "severely impacting flight operations" in a statement on its website, although it added operations remained normal tonight.
The observatory raised its Typhoon 3 warning today evening, triggered when wind speeds are expected to hit between 41 and 62 kilometres per hour.
It predicted it would raise it to a Typhoon 8, the third- highest warning level, around midnight.
The city saw its strongest storm in 1962 when the eye of typhoon Wanda passed over and gusts of 284 kilometres per hour were recorded.
It killed 130 people and destroyed thousands of residential huts, leaving 72,000 people homeless.
Since then, Hong Kong has adapted to typhoons, including making sure its highest commercial skyscrapers can sway in the wind, and they now rarely cause deaths.
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