The 25-year-old Chinese player, who won the prestigious UK Championship last November, was one of six international stars at the Hong Kong Masters. He will be replaced by three-time world champion Mark Williams, organisers said.
Zhao tested positive on Wednesday evening after arriving in the city the day before, according to the organisers.
"Williams was next in line for a place, as per the invitation criteria for the event, which was based on the world rankings at the conclusion of the 2022 World Championship," organisers said.
Visitors who get COVID-19 need to report their condition to Hong Kong authorities, isolate and wear an electronic wristband. But they no longer are automatically sent to quarantine camps.
Hong Kong is gradually relaxing its pandemic rules, which have been aligned to China's strict zero-COVID strategy. Last month the city scrapped its unpopular mandatory hotel quarantine rules for arrivals.
Players have been granted a partial exemption from COVID restrictions so they can access the competition venue, though they cannot enter restaurants and bars for the first three days of their stay in line with the policy applied to other arrivals.
Hours before testing positive on Wednesday, Zhao appeared alongside fellow players Ronnie O'Sullivan, Judd Trump, Mark Selby, John Higgins and Neil Robertson at a press conference.
Selby and Hong Kong's Marco Fu will kick-off the event today (Thursday) at the Hong Kong Coliseum, which will operate at 85% capacity under social distancing rules, with organisers expecting 9,000 spectators for Sunday's finals.
