From Friday, NSW, the ACT, Victoria and Queensland have cut isolation periods for COVID-positive people to seven days.

Positive cases must return a negative at-home rapid antigen test on day six before leaving home the following day.

Mr Morrison said anyone who had already been in isolation for seven days was allowed out at midnight on Thursday.

The four jurisdictions and South Australia will limit the definition of a close contact to anyone who lives with the COVID-positive person or has shared an accommodation setting with the person for four hours.

Close contacts must take a PCR test only if they have symptoms. Asymptomatic close contacts must take a rapid antigen test. If that test is positive, they must take a PCR test.

Close contacts must stay in isolation for seven days regardless of their test results.

Mr Morrison said the testing and isolation changes were designed to reduce the strain on testing clinics and get results back sooner.

Announcing the moves after an emergency meeting of national cabinet, he said Australia could not afford to have hundreds of thousands of essential workers isolating.

"If you're not symptomatic, you don't need to go and get a test," he said. "Now, I know this a bit different to what you've been hearing over the last couple of years.

"You don't have to go and get a rapid antigen test if you just happen to walk past or go in and get takeaway or even be at a restaurant or pub.

"You still need to check in, because you want to monitor your systems."

Chief medical officer Paul Kelly said "we will have more cases" due to the new public health controls, but he believed they would better direct testing to those most in need.

University of Newcastle Laureate Professor Nick Talley, a researcher, staff specialist at John Hunter Hospital and the 2018 NSW Scientist of the Year, said the changes appeared to be more about pragmatism than managing the outbreak effectively.

"That means we haven't got enough testing availability to cope with the kind of surge we are having now and can expect to see in the coming weeks," he said.

"That is a reflection of poor planning, in my view, because this was both predicted and quite likely, and now it's come to pass.

"It means higher miss rates for real cases, more spread of the infection in the community which may go unrecognised partially, and in the end more misery."

He said it was a "very sad state of affairs" for a country which had "led the world" in its pandemic response.

"It's about to lose its crown," he said.

The Prime Minister said the federal and state governments would not provide free rapid antigen tests except to eligible people at testing clinics and in select high-risk settings such as aged care.

He said this would give retailers confidence they could stock shelves with RATs without fear the states would hand them out for free.

"We will transfer over the next few weeks from PCR to these rapid antigen tests at the state testing centres," he said. "So, if you turn up at those testing centres for all the reasons I've set out, you will either get a PCR test or a rapid antigen test.

"If you're eligible for a rapid antigen test and there's ones there at that time, you'll be given one of those, you'll go home, you'll take it and you'll follow those rules.

"If there isn't a rapid antigen test there, we'll still give you a PCR test.

"For all other casual uses, you just think you'd like to get a test or something like that, well, that's what the private market is for."

Private pathology companies now receive a Medicare subsidy of $85 per PCR test and public laboratories receive a benefit of $42.50.

Australian labs have performed more than 54 million tests since the pandemic began, including 25 million in NSW. The testing program has cost taxpayers an estimated $3 billion so far.

Shadow Minister for the Hunter Yasmin Catley said the move to RATs risked creating an inequality for those who could not afford them.

Ms Catley wanted to know how the government would adapt isolation payments for close contacts, given that until now they had been triggered by taking a PCR test.

The contact and isolation changes exclude Western Australia and the Northern Territory, which have relatively low case loads.

Tasmania will adopt the changes from Saturday.

NSW reported a record 12,226 cases in the 24 hours to 8pm on Wednesday, the second day in a row the tally has topped 11,000.

Hospital admissions due to COVID jumped from 625 to 746, and intensive care numbers grew from 61 to 63.

Hunter New England Health district added 708 cases, including 194 in Lake Macquarie, 153 in Newcastle, 97 in Maitland, 58 in Port Stephens, 48 in Cessnock, 30 in MidCoast, 23 in Singleton, 16 in Muswellbrook, 10 in Upper Hunter and three in Dungog.

Dr Kelly said it was "very clear" omicron was less severe than previous coronavirus variants, pointing to South African data.

"They are seeing a 73 per cent decrease in severity," he said.

"That's similar to what we are seeing in Australia ... so 1400 out of 110,000 [overall cases] in hospital. That is much lower than what we have seen before.

"That may rise over time, but at the moment that is what we are seeing."

The World Health Organisation warned on Thursday that omicron could overwhelm health systems as cases reached record highs in Europe.

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