Endogenous retroviruses (ERVs) have been reported to participate in pre-implantation development of mammalian embryos. In early human embryogenesis, different ERV sub-families are activated in a highly stage-specific manner. How the specificity of ERV activation is achieved remains largely unknown. Here, we demonstrate the mechanism of how LTR7Ys, the human morula-blastocyst-specific HERVH long terminal repeats, are activated by the naive pluripotency transcription network. We find that KLF5 interacts with and rewires NANOG to bind and regulate LTR7Ys; in contrast, the primed-specific LTR7s are preferentially bound by NANOG in the absence of KLF5. The specific activation of LTR7Ys by KLF5 and NANOG in pluripotent stem cells contributes to human-specific naive pluripotency regulation. KLF5-LTR7Y axis also promotes the expression of trophectoderm genes and contributes to the expanded cell potential toward extra-embryonic lineage. Our study suggests that HERVs are activated by cell-state-specific transcription machinery and promote stage-specific transcription network and cell potency.