Hong Kong will shorten the COVID-19 hotel quarantine period for all arrivals to three days from seven, taking another step to gradually unwind stringent pandemic rules that have isolated the Asian financial hub.

The measures will be effective from Friday, the city's leader, John Lee, told a news conference on Monday.

Arrivals will need to self monitor for a further four days, during which they will be forbidden to enter such premises as restaurants and bars.

"We need to balance between people's livelihood and the competitiveness of Hong Kong to give the community maximum momentum and economic vitality," Lee said.

People in quarantine will be issued a red code on a government mandated app. This will change to a yellow code once they leave quarantine, signifying they may not enter crowded premises.

Quarantine was formerly as long as three weeks. Currently, all arrivals must spend at least a week in hotel quarantine and comply with frequent testing orders, provide faecal samples for babies and fill out multiple forms.

Only a select number of hotels are available for quarantine.

Rooms are costly and are typically booked out months in advance. Payment is made up front and refunds are not permitted unless there is a change in government policy or flight cancellation.

Hong Kong's competitiveness has been hammered by the pandemic measures, business executives have said, hoping Lee, the city's leader since July 1, would scrap the quarantine rules.

The city's border has been almost completely sealed since 2020, with international arrivals facing tough quarantine and testing protocols. It is one of the last places in the world still imposing quarantine for arrivals.

Lee has pledged to reconnect Hong Kong with the mainland and the rest of the world. He suspended a rule in July that banned individual flights if they brought in passengers infected with the coronavirus, saying it caused unnecessary trouble and inconvenience for residents.

More than 100 flights were banned this year, a major frustration for businesses and residents use to easy and efficient travel from the city.

Shares in flagship carrier Cathay Pacific Airways leapt as much as 3.5% after the announcement to HK$8.77, the biggest daily percentage rise since June 28.

Cathay said on Monday that the adjustments were positive steps to help facilitate travel into Hong Kong.

"We are asking the government to urgently provide a clear roadmap showing the complete removal of all COVID-related restrictions for aircrew and passengers as soon as is feasible to protect Hong Kong's international aviation hub status."

Cathay has been battered by Hong Kong's strict pandemic rules over the past two years that led to a 98% fall in passenger numbers.

Hong Kong's popular international Rugby Sevens event will take place November 4-6 for the first time in more than three years. It was cancelled in 2020 and 2021 because of pandemic measures.

The tournament, which is a draw for international visitors, is meant to coincide with a major banking conference that month to be attended by top global executives and will be a sign that Hong Kong can resume business as normal.

Bankers have said that quarantine free travel is a pre-condition for the event to take place.