Health and social care secretary Matt Hancock said that the new service would help to keep the virus 'under control while carefully and safely lifting the lockdown nationally'.
From Thursday, people who test positive for COVID-19 will be contacted by the new service and asked for the name and contact details of anyone that they have been within 2 metres of for more than 15 minutes in recent days.
These people will be alerted by email or text and will then either need to log into the service's website, or a call handler will contact them to explain what to do.
Close contacts will be expected to self isolate for up to 14 days, depending on when they last saw the individual who tested positive, even if they don't have symptoms. Other members of that household will not be required to remain at home unless the contact becomes symptomatic.
During an appearance before the House of Commons liaison committee on Wednesday afternoon, prime minister Boris Johnson accepted that the new system relied on people's 'willingness to cooperate' and provide information of those they have been in contact with. He said he was confident that people would do this, but added 'if it doesn't work, we will look at sanctions then because it's maybe something that we need to do'.
Mr Johnson also said that if people did not follow advice to self isolate the government would consider 'what sanctions might be necessary', including possible financial penalties.
NHS Test and Trace will be staffed by 25,000 contact tracers and able to trace the contacts of 10,000 people per day, which could be scaled up if needed, the DHSC said.
Testing for under 5s
The government has also expanded testing to include children under 5, which it said would 'help support the phased opening of schools and childcare settings in England from 1 June'.
From Thursday, all symptomatic adults or children in England will be able to access a test if they need one. In Wales, this will be the case from Saturday. Testing will still be arranged online or by calling 119.
Mr Johnson said that the government was working to reduce the time it took for test results to be processed and was aiming for all results to be turned around in 24 hours, however he declined to put a timeframe on when this might be achieved. 'I understand that a chunk of [tests] are already within 24 hours and that chunk is growing,' he said.
As part of the new test and trace strategy local authorities have been told to work in partnership with the new service to help develop local outbreak control plans, which will focus on identifying and containing potential outbreaks in workplaces, care homes and schools. Steps could involve localised lockdowns if necessary.
NHS COVID-19 app
The NHS COVID-19 app, which is also part of the strategy, will be launched 'in the coming weeks'. The DHSC said this would 'significantly extend the speed and reach of contact tracing, by helping to identify those who you may not know, such as someone sitting next to you on public transport'.
The app, which has been developed by NHSX has been piloted in recent weeks on the Isle of Wight.
Mr Hancock said: 'As we move to the next stage of our fight against coronavirus, we will be able to replace national lockdowns with individual isolation and, if necessary, local action where there are outbreaks. NHS Test and Trace will be vital to stopping the spread of the virus. It is how we will be able to protect our friends and family from infection, and protect our NHS.'