Prime Minister Scott Morrison announced the changes in Canberra on Friday following a virtual National Cabinet meeting with state and territory leaders to discuss the future of the hotel quarantine scheme.
He reiterated that ensuring getting Australians stranded overseas home was the priority of the government.
"We must remember that our borders are actually shut. No-one can just come to Australia," he said.
"The states are continuing to work to improve hotel quarantine around the country."
More than 211,000 people have returned from overseas over the course of the pandemic, but about 40,000 Australians remain stuck overseas.
Australia lifts international arrivals caps
The majority of returning travellers have been quarantined in the hotel system on their return.
"Now that we are in 2021, the risk environment, or the risk matrix as we spoke about today, has shifted," Mr Morrison said.
"It's changing, we're going to better understand that change, and that can have changes for the way, positively, for the way we manage this pandemic going ahead in the future."
Mr Morrison said the hotel quarantine system had been "incredibly effective" in slowing the spread of COVID-19 to Australia and would continue, despite a small number of locally-transmitted cases linked to the overseas travellers.
The government, however, would continue to investigate options for quarantining returned travellers outside of major cities, including by increasing capacity at the Federal government-run Howard Springs facility by more than double and considering a proposal for a quarantine location in the regional Queensland town of Toowoomba.
He said the Toowoomba proposal involved different considerations to Howard Springs due to the latter's proximity to Darwin.
"None of these circumstances are exactly alike, but we're looking at it on its merits and not opposed in principle to things of this nature," he said.
Labor has called on the government to take greater responsibility for the hotel quarantine system, which it says has been palmed off to the states to manage.
"Scott Morrison has had a deliberate position of handing off responsibility to the state so he can then blame the states after any issues arise," opposition leader Anthony Albanese said on Friday.
"But the constitution makes it very clear that our national government is in charge of quarantine, it is in charge of our international borders."
In response, Mr Morrison said the states and territories were responsible for running hotel quarantine based on a National Cabinet decision in March last year.
No locally acquired cases were reported in Australia on Friday, despite recent confirmed cases in hotel quarantine workers in Perth and Melbourne.
Chief Medical Officer Paul Kelly said only nine people remained in hospital with COVID-19 and none in intensive care.
"We haven't seen a death in Australia from COVID for some months," he said, adding that Australia was in a very different situation to many countries across the world, including the United States which had more than 20,000 deaths in the week to 3 February.
"A lot of that is to do with the strength of our hotel quarantine systems and our border controls."
People in Australia must stay at least 1.5 metres away from others. Check your jurisdiction's restrictions on gathering limits.
If you are experiencing cold or flu symptoms, stay home and arrange a test by calling your doctor or contact the Coronavirus Health Information Hotline on 1800 020 080. News and information is available in 63 languages at sbs.com.au/coronavirus.
Please check the relevant guidelines for your state or territory: NSW, Victoria, Queensland, Western Australia, South Australia, Northern Territory, ACT, Tasmania.