diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
index d6faed4b0a..d1d3491156 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
@@ -73,7 +73,7 @@ namespace AzToolsFramework
                         settings.m_keepDefaults = true;
                     }
 
-                    if ((flags & StoreFlags::StoreLinkIds) != StoreFlags::None)
+                    if ((flags & StoreFlags::StripLinkIds) != StoreFlags::StripLinkIds)
                     {
                         settings.m_metadata.Create<LinkIdMetadata>();
                     }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
index e336cf0fca..d2234f423b 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
@@ -52,7 +52,7 @@ namespace AzToolsFramework
 
                 //! We do not save linkIds to file. However when loading a level we want to temporarily save
                 //! linkIds to instance dom so any nested prefabs will have linkIds correctly set.
-                StoreLinkIds = 1 << 1
+                StripLinkIds = 1 << 1
             };
             AZ_DEFINE_ENUM_BITWISE_OPERATORS(StoreFlags);
 
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
index d0b057d45b..3b082fe9ff 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabLoader.cpp
@@ -331,7 +331,7 @@ namespace AzToolsFramework
             }
 
             PrefabDom storedPrefabDom(&loadedTemplateDom->get().GetAllocator());
-            if (!PrefabDomUtils::StoreInstanceInPrefabDom(loadedPrefabInstance, storedPrefabDom, PrefabDomUtils::StoreFlags::StoreLinkIds))
+            if (!PrefabDomUtils::StoreInstanceInPrefabDom(loadedPrefabInstance, storedPrefabDom))
             {
                 return false;
             }
@@ -359,7 +359,7 @@ namespace AzToolsFramework
 
             PrefabDom storedPrefabDom(&savingTemplateDom->get().GetAllocator());
             if (!PrefabDomUtils::StoreInstanceInPrefabDom(savingPrefabInstance, storedPrefabDom,
-                PrefabDomUtils::StoreFlags::StripDefaultValues))
+                PrefabDomUtils::StoreFlags::StripDefaultValues | PrefabDomUtils::StoreFlags::StripLinkIds))
             {
                 return false;
             }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
index 62003cd846..4101357d65 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
@@ -197,7 +197,7 @@ namespace AzToolsFramework
 
                 // Update the template of the instance since the entities are modified since the template creation.
                 Prefab::PrefabDom serializedInstance;
-                if (Prefab::PrefabDomUtils::StoreInstanceInPrefabDom(instanceToCreate->get(), serializedInstance))
+                if (m_instanceToTemplateInterface->GenerateDomForInstance(serializedInstance, instanceToCreate->get()))
                 {
                     m_prefabSystemComponentInterface->UpdatePrefabTemplate(instanceToCreate->get().GetTemplateId(), serializedInstance);
                 }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
index 38ffb98fcb..3234aa8b2d 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabSystemComponent.cpp
@@ -163,17 +163,21 @@ namespace AzToolsFramework
 
         void PrefabSystemComponent::PropagateTemplateChanges(TemplateId templateId, InstanceOptionalConstReference instanceToExclude)
         {
-            auto templateIdToLinkIdsIterator = m_templateToLinkIdsMap.find(templateId);
-            if (templateIdToLinkIdsIterator != m_templateToLinkIdsMap.end())
+            TemplateReference findTemplateResult = FindTemplate(templateId);
+            if (findTemplateResult.has_value())
             {
-                // We need to initialize a queue here because once all linked instances of a template are updated,
-                // we will find all the linkIds corresponding to the updated template and add them to this queue again.
-                AZStd::queue<LinkIds> linkIdsToUpdateQueue;
-                linkIdsToUpdateQueue.push(LinkIds(templateIdToLinkIdsIterator->second.begin(),
-                    templateIdToLinkIdsIterator->second.end()));
-                UpdateLinkedInstances(linkIdsToUpdateQueue);
+                auto templateIdToLinkIdsIterator = m_templateToLinkIdsMap.find(templateId);
+                if (templateIdToLinkIdsIterator != m_templateToLinkIdsMap.end())
+                {
+                    // We need to initialize a queue here because once all linked instances of a template are updated,
+                    // we will find all the linkIds corresponding to the updated template and add them to this queue again.
+                    AZStd::queue<LinkIds> linkIdsToUpdateQueue;
+                    linkIdsToUpdateQueue.push(
+                        LinkIds(templateIdToLinkIdsIterator->second.begin(), templateIdToLinkIdsIterator->second.end()));
+                    UpdateLinkedInstances(linkIdsToUpdateQueue);
+                }
+                UpdatePrefabInstances(templateId, instanceToExclude);
             }
-            UpdatePrefabInstances(templateId, instanceToExclude);
         }
 
         void PrefabSystemComponent::UpdatePrefabTemplate(TemplateId templateId, const PrefabDom& updatedDom)
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
index dc799c235a..25879be23d 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
@@ -256,7 +256,7 @@ namespace AzToolsFramework
                 return;
             }
 
-            PrefabDomReference sourceDom = sourceTemplate->get().GetPrefabDom();
+            PrefabDom& sourceDom = sourceTemplate->get().GetPrefabDom();
 
             //use instance pointer to reach position
             PrefabDomValueReference instanceDomRef = link->get().GetLinkedInstanceDom();
@@ -274,16 +274,14 @@ namespace AzToolsFramework
                 (result.GetOutcome() != AZ::JsonSerializationResult::Outcomes::PartialSkip),
                 "Some of the patches are not successfully applied.");
 
-            //remove the link id placed into the instance
-            auto linkIdIter = instanceDom.FindMember(PrefabDomUtils::LinkIdName);
-            if (linkIdIter != instanceDom.MemberEnd())
-            {
-                instanceDom.RemoveMember(PrefabDomUtils::LinkIdName);
-            }
+            // Remove the link ids if present in the doms. We don't want any overrides to be created on top of linkIds because
+            // linkIds are not persistent and will be created dynamically when prefabs are loaded into the editor.
+            instanceDom.RemoveMember(PrefabDomUtils::LinkIdName);
+            sourceDom.RemoveMember(PrefabDomUtils::LinkIdName);
 
             //we use this to diff our copy against the vanilla template (source template)
             PrefabDom patchLink;
-            m_instanceToTemplateInterface->GeneratePatch(patchLink, sourceDom->get(), instanceDom);
+            m_instanceToTemplateInterface->GeneratePatch(patchLink, sourceDom, instanceDom);
 
             // Create a copy of patchLink by providing the allocator of m_linkDomNext so that the patch doesn't become invalid when
             // the patch goes out of scope in this function.