Holidaymakers at the H10 Costa Adeje Palace had previously been told they would have to remain in quarantine until 10 March, after at least four guests were found to be infected.
But now Tui says Public Health England has told its customers stuck in the hotel that they are free to return home if they test negative for the virus.
The travel company said it is making arrangements for guests who test negative to be brought back to the UK.
Tui and Jet2 had previously refused to repatriate the 160 British nationals stuck in the hotel until the government confirmed it was safe to do so.
A Department of Health spokesperson indicated the individuals would not be quarantined upon their return to the UK.
Professor Yvonne Doyle, medical director at Public Health England (PHE), said any individuals who have returned from the coronavirus-hit hotel are advised to self-isolate until 10 March.
“If they develop symptoms in that time, they should call NHS 111 and they will be tested for Covid-19,” Prof Doyle said.
Spanish authorities have said that the risk of infection for any Brits staying at the hotel is low, according to PHE.
In a letter to the British tourists at the hotel, PHE said: "We recognise that this has been a challenging time and the UK Government is working with your tour operator, flight carrier and the Spanish authorities to support your return home.
"To provide reassurance to you and to the flight carrier, you will be asked to have a COVID-19 test. If the result is negative and you remain well and are assessed as asymptomatic at the airport, you will be able to fly home. On your return, you are asked to self-isolate, even if you do not have symptoms, until 10 March."
One holidaymaker, who preferred not to be named, told the Press Association that some guests at the four-star hotel had been swabbed on Saturday.
“I got a call from a Tui rep saying that we’re low risk and they’re testing us to try and get us home,” they said.
“I don’t know how long the test results take, there’s rumours it’s 72 hours but I don’t know.”
Some guests have previously criticised the quarantine measures. A British man claimed nobody felt safe after Spanish authorities said guests without symptoms could move freely around the hotel, including the pool and bar.
Additional reporting by PA