Those who have received two vaccination doses will no longer have to self-isolate if they come into contact with someone who has tested positive for COVID, from August 16.
Making an announcement in the Commons on changes to the Government's self-isolation policy, newly appointed Health Secretary, Sajid Javid, also confirmed self-isolation rules for those aged under 18 will end on the same date.
Individuals must allow two weeks to pass after having their second jab before they are allowed to be exempt from self-isolating, Mr Javid added.
At present, people identified as a close contact of someone who has tested positive for coronavirus will receive an alert from the Test and Trace app or a phone call from a tracer telling them to isolate for 10 days.
For those who have only received one vaccination or those who have not been vaccinated, the requirement to self-isolate after coming into contact with an infected person will remain in place.
And if someone who has received two jabs tests positive for coronavirus they will still have to isolate for the ten-day period.
Mr Javid told MPs "the odds have shifted in our favour" due to the successful vaccination rollout which will allow the Government to make the self-isolation system more flexible next month.
He said:
"From August 16, when even more people will have the protection of both doses and when modelling suggests the risks from the virus will be even lower, anyone who is a close contact of a positive case will no longer have to self-isolate if they have been fully vaccinated.
"If someone gets their second dose just before or just after August 16, they will need to wait two weeks - after which their second jab can take effect and give them these new freedoms."
The health secretary said the Government will advise close contacts of confirmed cases who are fully vaccinated "to take a PCR test as soon as possible", adding: "And of course, anyone that tests positive will have to self-isolate whether they have had the jab or not."
The Government hopes the new system will bring an end to the disruption of individuals being made to stay in their homes, in some cases, for multiple periods of ten days.
On under 18s, Mr Javid added:
"In line with the approach for adults, anyone under the age of 18 who is a close contact of a positive case will no longer have to self-isolate.
"Instead, they will be given advice about whether they should get tested - dependent on their age - and will need to self-isolate only if they test positive.
"These measures will also come into force on 16 August ahead of the autumn school term."
Earlier on Tuesday, Mr Javid said the NHS Test and Trace programme would be made more "proportionate" under the changes.
He added that it is "absolutely right" that the government takes a different approach with those who have received both jabs.
The heath secretary's comments come a day after Prime Minister Boris Johnson announced that almost all COVID rules will be ditched as part of the final step of the roadmap for lifting lockdown restrictions in England.
This includes limits on the number of people who can meet together, legal requirements on wearing face masks and social distancing in pubs and bars. However, the PM did not announce any changes to the Government's self-isolation policy in his update.
The last step of the Government's roadmap is due to take place on July 19 - subject to four key tests being met - with a final decision on whether to go ahead to be taken in a week's time following a review of the latest data.
The PM wants to move away from ministerial edicts for managing the coronavirus pandemic.
Instead, people in England will be encouraged to use their personal judgement on the risks of infection - with the prime minister wishing to see a new way of living with the virus.
But Labour have accused the government of being "reckless" by aiming to remove the majority of measures in two weeks' time, while Mr Johnson was criticised for scrapping legal requirements on face masks.
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