The decision means returning Britons will be able to quarantine at home instead of a hotel at a cost of £1,750.
But Ethiopia, Oman, Somalia and Qatar have been added to the red list to reduce the risk of importing “variants of concern”, the DfT said.
Qatar’s international airport is popular for people returning to the UK on connecting flights from countries in Asia and Australasia, so its addition to the red list will have a significant impact. A travel ban is already in force for the United Arab Emirates, which is another Gulf hub.
The changes will come into force at 4am on Friday.
The DfT said it has decided to axe its ban on direct flights and sailings from Portugal – including Madeira and the Azores – due to “evidence that shows the risk of importing a variant of concern from these destinations has reduced”.
Portugal was initially added to the red list partly because of its connections with South America.
But the DfT said the country has “put steps in place to mitigate the risk from its links with countries where variants have become a concern”.
Portugal’s Algarve region is a popular hotspot destination for UK holidaymakers.
The Government’s Global Travel Taskforce will provide a report to the Prime Minister on April 12 setting out recommendations for how and when foreign holidays could resume.
People who have spent time in a country on the list in the previous 10 days are banned from entering England, unless they are British or Irish citizens or have residency rights.
Anyone entitled to enter must stay in a Government-approved hotel for 10 days.
Everyone living in the SE5 postcode in Southwark and parts of Harrow with HA2 and HA3 postcodes are being encouraged to get a test when offered, even if they are not showing symptoms.
Anyone who tests positive for the variant will go through enhanced contact tracing, the Department of Health said.
More than 300 cases of the South African variant have been found in the UK so far, with surge testing already rolled out in a number of London postcodes.
Scientists fear the strain, which is thought to be 1.5 times more transmissible, could be more resistant to existing Covid vaccines.