The change will come into force from August 16 and applies to those who are double jabbed or aged under 18.
Double-jabbed people contacted by NHS Test and Trace currently have to self-isolate for 10 days if they come into contact with someone who has the virus.
But the government says instead of self-isolating, from Monday close contacts are advised to get a free PCR test as soon as possible.
Anyone who tests positive following the PCR test will still be legally required to self-isolate.The announcement follows just weeks after some workers were allowed to skip isolation if 'pinged' by the NHS app.
The change applied for named workers in specifically approved workplaces - from mainly 16 sectors including essential transport, food supply, emergency services and energy.
But from Monday all double vaccinated adults will no longer be required to self-isolate, as long as they have received their final dose of a MHRA-approved vaccine in the UK vaccination programme at least 14 days prior to contact with a positive case.
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Health and Social Care Secretary Sajid Javid said the move is "another huge step back towards our normal lives."
He said: “Asking the close contacts of people with COVID-19 to self-isolate has played a critical role in helping us get this virus under control, and millions of people across the UK have made enormous sacrifices by doing this.
"Every single one of these sacrifices has helped us protect the NHS and save lives.
“Getting two doses of a vaccine has tipped the odds in our favour and allowed us to safely reclaim our lost freedoms, and from Monday we can take another huge step back towards our normal lives by removing self-isolation requirements for double jabbed people who are contacts of people with COVID-19.
"Double jabbed people who test positive will still need to self-isolate.
“Vaccines are what will bring this pandemic to an end – the wall of defence provided by the rollout is allowing us to get even closer to normal life. If you haven’t already, please make sure you come forward for your jab at the earliest opportunity.”
The change in policy was originally announced last month by Mr Javid as part of step four of the government’s Covid roadmap.
Removing self-isolation for under 18s as well as the double jabbed comes ahead of the autumn school term and aims to reduce disruption to education and keep children in the classroom.
UK Health Security Agency Chief Executive (UKHSA), Dr Jenny Harries said the change in self isolation policy is because of the "huge success" of the vaccine programme.
She said: “Thanks to the huge success of the vaccine programme, we are able to ease self-isolation requirements for double jabbed people and under 18s.
"It is important that close contacts continue to come forward for a PCR test, in order to detect the virus and variants of concern.
"Although two doses of vaccine will greatly reduce your own risk of becoming unwell with Covid-19, it is still possible to contract the virus and pass it to others.
"So if you develop symptoms at any time – vaccinated or not – you should get a test and be very careful in your contact with others until you have received a negative test result”