The transport secretary, Grant Shapps, revealed the change in government policy in a tweet: “Data also shows we can now add Portugal to those countries INCLUDED in Travel Corridors.”
It means that travel firms can once again sell holidays to the Algarve, Lisbon, Madeira and the Azores.
But Mr Shapps warned: “As with all air bridge countries, please be aware that things can change quickly.
“Only travel if you are content to unexpectedly 14-day quarantine if required (I speak from experience!).”
The transport secretary spent two weeks in quarantine after it was suddenly reimposed on Spain on 26 July.
The decision takes effect from 4am on Saturday 22 August, meaning that passengers from Portugal touching down in UK airports from that time onwards will be exempt from quarantine.
But those who have already landed are expected to complete 14 days in self-isolation.
The Foreign Office has also updated its advice.
It said: "Portugal is now exempt from the FCO advice against all non-essential international travel; from 4am on 22 August, Portugal will be added to the list of countries where self-isolation on return to the UK is not required."
Mandatory quarantine was imposed on Portugal, and every other country in the world apart from Ireland, on 8 June.
On 10 July the government announced that dozens of countries and territories would be exempt from quarantine – but controversially Portugal was not included.
The country has lobbied intensively to be awarded no-quarantine status.
Luis Araujo, president of Turismo de Portugal, said: "We are now delighted to have arrived at a decision which we feel far better reflects the reality of the situation in Portugal.
“Portugal has been welcoming guests from the United Kingdom since the beginning of July, therefore this is not the case of a country just opening its doors after battling the worst of the pandemic, but the case of a destination which has been operating with the capacity for international visitors for some time now following effective early action in the battle against the virus.
“While this has been a period which nobody will ever forget, a period of time which has left behind a trail of destruction, sorrow, and pain – we are so thankful to be able to open our arms, even wider than before, to the people of the United Kingdom.”
Within minutes of the transport secretary’s announcement, air fares to the Algarve started to soar.
Fares from Manchester to Faro tracked by The Independent showed the Saturday morning easyJet flight almost doubled in price within half an hour, from £50 to £98, as holidaymakers sought short-notice escapes.
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