diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityContextBus.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityContextBus.h
index 30ffb461fa..1a5ba60bdf 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityContextBus.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityContextBus.h
@@ -201,11 +201,8 @@ namespace AzToolsFramework
         //! Fired after the EditorEntityContext fails to export the root level slice to the game stream
         virtual void OnSaveStreamForGameFailure(AZStd::string_view /*failureString*/) {}
 
-        //! Fired when the user triggers a clone of ComponentEntity object(s), before operation begins
-        virtual void OnEntitiesAboutToBeCloned() {}
-
-        //! Fires when the user triggers a clone of ComponentEntity object(s)), after operation completes
-        virtual void OnEntitiesCloned() {}
+        //! Preserve entity order when re-parenting entities
+        virtual void SetForceAddEntitiesToBackFlag(bool /*forceAddToBack*/) {}
 
     };
 
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityHelpers.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityHelpers.cpp
index 3e256430a2..dc0f5e9654 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityHelpers.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityHelpers.cpp
@@ -1157,7 +1157,7 @@ namespace AzToolsFramework
 
     bool CloneInstantiatedEntities(const EntityIdSet& entitiesToClone, EntityIdSet& clonedEntities)
     {
-        EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::OnEntitiesAboutToBeCloned);
+        EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::SetForceAddEntitiesToBackFlag, true);
         ScopedUndoBatch undoBatch("Clone Selection");
 
         // Track the mapping of source to cloned entity. This both helps make sure that an entity is not accidentally
@@ -1199,7 +1199,7 @@ namespace AzToolsFramework
         // Also replace the selection with the entities that have been cloned.
         Internal::UpdateUndoStackAndSelectClonedEntities(allEntityClonesContainer.m_entities, undoBatch);
 
-        EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::OnEntitiesCloned);
+        EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::SetForceAddEntitiesToBackFlag, false);
 
         for (const AZ::Entity* entity : allEntityClonesContainer.m_entities)
         {
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.cpp
index e4d4f40bce..adf062875e 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.cpp
@@ -643,14 +643,9 @@ namespace AzToolsFramework
         }
     }
 
-    void EditorEntityModel::OnEntitiesAboutToBeCloned()
+    void EditorEntityModel::SetForceAddEntitiesToBackFlag(bool forceAddToBack)
     {
-        m_forceAddToBack = true;
-    }
-
-    void EditorEntityModel::OnEntitiesCloned()
-    {
-        m_forceAddToBack = false;
+        m_forceAddToBack = forceAddToBack;
     }
 
     void EditorEntityModel::ChildEntityOrderArrayUpdated()
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.h
index 45d3d4ea59..c2574a9940 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/EditorEntityModel.h
@@ -94,9 +94,7 @@ namespace AzToolsFramework
         void OnEntityStreamLoadBegin() override;
         void OnEntityStreamLoadSuccess() override;
         void OnEntityStreamLoadFailed() override;
-        void OnEntitiesAboutToBeCloned() override;
-        void OnEntitiesCloned() override;
-
+        void SetForceAddEntitiesToBackFlag(bool forceAddToBack) override;
 
         ////////////////////////////////////////////////
         // AzFramework::EntityContextEventBus::Handler
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
index aaf6141e12..bde5de2f64 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabPublicHandler.cpp
@@ -11,6 +11,7 @@
 #include <AzCore/JSON/writer.h>
 #include <AzCore/Serialization/Json/JsonSerialization.h>
 #include <AzCore/Utils/TypeHash.h>
+#include <AzCore/std/sort.h>
 
 #include <AzToolsFramework/API/ToolsApplicationAPI.h>
 #include <AzToolsFramework/ContainerEntity/ContainerEntityInterface.h>
@@ -83,6 +84,20 @@ namespace AzToolsFramework
                 return AZ::Failure(findCommonRootOutcome.TakeError());
             }
 
+            // order entities by their respective position within Entity Outliner
+            EditorEntitySortRequestBus::Event(
+                commonRootEntityId,
+                [&topLevelEntities](EditorEntitySortRequestBus::Events* sortRequests)
+                {
+                    AZStd::sort(
+                        topLevelEntities.begin(), topLevelEntities.end(),
+                        [&sortRequests](AZ::Entity* entity1, AZ::Entity* entity2)
+                        {
+                            return sortRequests->GetChildEntityIndex(entity1->GetId()) <
+                                sortRequests->GetChildEntityIndex(entity2->GetId());
+                        });
+                });
+
             AZ::EntityId containerEntityId;
 
             InstanceOptionalReference instanceToCreate;
@@ -153,8 +168,6 @@ namespace AzToolsFramework
                 }
 
                 // Create the Prefab
-                AZ_Assert(filePath.IsAbsolute(), "CreatePrefabInMemory requires an absolute file path.");
-
                 instanceToCreate = prefabEditorEntityOwnershipInterface->CreatePrefab(
                     entities, AZStd::move(instancePtrs), m_prefabLoaderInterface->GenerateRelativePath(filePath),
                     commonRootEntityOwningInstance);
@@ -172,6 +185,7 @@ namespace AzToolsFramework
 
                 // Parent the non-container top level entities to the container entity.
                 // Parenting the top level container entities will be done during the creation of links.
+                EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::SetForceAddEntitiesToBackFlag, true);
                 for (AZ::Entity* topLevelEntity : topLevelEntities)
                 {
                     if (!IsInstanceContainerEntity(topLevelEntity->GetId()))
@@ -179,6 +193,7 @@ namespace AzToolsFramework
                         AZ::TransformBus::Event(topLevelEntity->GetId(), &AZ::TransformBus::Events::SetParent, containerEntityId);
                     }
                 }
+                EditorEntityContextNotificationBus::Broadcast(&EditorEntityContextNotification::SetForceAddEntitiesToBackFlag, false);
 
                 // Update the template of the instance since the entities are modified since the template creation.
                 Prefab::PrefabDom serializedInstance;
@@ -279,6 +294,8 @@ namespace AzToolsFramework
 
         CreatePrefabResult PrefabPublicHandler::CreatePrefabInDisk(const EntityIdList& entityIds, AZ::IO::PathView filePath)
         {
+            AZ_Assert(filePath.IsAbsolute(), "CreatePrefabInDisk requires an absolute file path.");
+
             auto result = CreatePrefabInMemory(entityIds, filePath);
             if (result.IsSuccess())
             {