"It's highly emotive but we have to balance the needs of the business with those of workers and shareholders," said a spokesperson for the group.
He said unvaccinated workers who test positive will still receive Next's full rate of sick pay.
Next's move follows a similar one by furniture retailer Ikea.
Last month COVID rules in England were relaxed for people who have been vaccinated so they did not need to isolate if they were exposed to a positive case.
However, there was no change to the guidance for unvaccinated contacts of positive COVID-19 cases, who were still required to self-isolate for 10 days after their date of exposure to the virus.
Next's policy shift means unvaccinated workers required to isolate after being identified as a close contact of someone with COVID could receive as little as the Statutory Sick Pay minimum of 96.35 pounds ($132.43) a week.
British companies have so far steered clear of the tough stance taken by companies in the United States on their workers' vaccination status.
An increasing number of U.S. companies have been using vaccine requirements to protect employees and avoid operations being disrupted by mass staff absences. read more
Last week Next raised its full-year profit outlook for a fifth time in 10 months after beating guidance for sales in the run-up to Christmas.