The First Minister made the long-awaited announcement during a statement at the Scottish Parliament, after coming under increasing pressure to loosen the restrictions.
Scots who receive a positive lateral flow test will also no longer have to book a PCR test to confirm the result, to free up capacity elsewhere in the system. Both changes will take effect from Thursday.
Scotland has had the UK’s strictest self-isolation rules for coronavirus over the Christmas period, with other nations choosing to reduce the time needed to quarantine to reduce the pressure on public services.
Ms Sturgeon said she had decided to follow the rest of the UK in cutting the self-isolation time after being advised by public health experts that the benefits of this policy outweighed the risks.
Under the new system, people will be able to end their self-isolation after seven days as long as they have no fever and record two negative lateral flow tests on days six and seven.
Close contacts of positive cases – including other members of their household – will also no longer have to self-isolate as long as they take a lateral flow test every day for a week.
However, this exemption will only apply to those who are fully vaccinated with their first, second and third or booster doses, with unvaccinated adults still having to self-isolate as before.
“These changes are significant and not completely without risk,” Ms Sturgeon told MSPs.
“However, at this stage of the pandemic they strike an appropriate balance between the continued importance of self-isolation in breaking chains of transmission, and reducing the disruption self-isolation causes in the economy and critical services.”
The changes to testing mean that from Thursday, someone in Scotland who receives a positive lateral flow test will no longer need to book a PCR test to confirm the result.
Instead, they will have to self-isolate immediately and report their result online, allowing their contacts to be traced through the Test and Protect system.
However, for those with symptoms of Covid, the advice will remain to book a PCR test.
This story is being updated