Heavy rains and flash floods have struck a wide swath of the country from the Carolinas to New England.
"We're still concerned about its overall stability going into tonight and tomorrow morning", said Tim Mitchell, the city's director of water resources.
County officials reported the dam's "imminent failure" at around 9:30 p.m.
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Lynchburg, with a population of around 80,000, is home to a number of colleges and universities, including the University of Lynchburg (previously Lynchburg College), which owns the lake the dam is located on.
Lynchburg has been hammered by heavy rain over the past few days, which has raised water levels inside the dam. Local fire and police used boats to rescue people.
Other photos showed water rushing Thursday night over the dam and Lakeside Drive, which separates College Lake and Blackwater Creek. The city said it would open a gate in the spillway on Saturday to drain some of the water from the reservoir before fix work could begin on the dam and roadway.
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In 2014, engineers began surveying College Lake Dam as the result of a study determining the dam could not handle the flow of water expected during severe weather conditions, creating a safety hazard for residents who live below the dam. City officials posted pictures Thursday of rescuers using a raft to take families from a flood-threatened apartment complex as well as the partial collapse of one road into an adjacent creek.
It was feared that if the dam did fail and collapse, water would flood from the creek into the James River, which is close to the city's business district.
If the dam bursts, Lynchburg could be flooded with up to 17ft (six metres) of water in just seven minutes.
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The west-central Virginia city near the Blue Ridge Mountains has received plenty of runoff from recent rains, with 4 to 6 inches falling in the area Thursday evening and filling College Lake beyond its capacity.