The mandatory isolation period for positive COVID-19 cases has been reduced from seven to five days.
The decision follows the latest National Cabinet meeting between Prime Minister Anthony Albanese and state and territory leaders.
People will be able to leave isolation after five days provided they have no symptoms.
Seven days of isolation will still apply for worker in high-risk settings such as aged and disability care.
"On the weight of evidence, this was a proportionate response, at this point in the pandemic," Mr Albanese told reporters in Sydney.
"What we want to do is to make sure that government responds to the changed circumstances, that COVID likely is going to be around for a considerable period of time, and we need to respond appropriately to it."
Pandemic leave eligibility and masks on flights
The paid pandemic leave eligibility period will also change from 9 September to reflect the shorter isolation period.
National Cabinet has also agreed to remove mask mandates for travellers on domestic flights from that same date.
The extension of the paid pandemic leave is still set to expire at the end of September.
Treasurer Jim Chalmers said Australians should not expect emergency pandemic payments to go on forever.
National Cabinet has also agreed to remove mask mandates for travellers on domestic flights from 9 September.
The meeting also heard from acting chief medical officer Michael Kidd on how future COVID waves would be able to be handled.
Mr Albanese said the decision to reduce the isolation period was based on evidence, which will continue to be assessed.
National Cabinet will meet virtually in a fortnight and then face to face on 30 September.
Opposition Leader Peter Dutton said the community expected arrangements put in place at the height of the pandemic to be unwound over time.
