diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
index 2d97689610..b5cf5fb878 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
@@ -72,15 +72,8 @@ namespace AzToolsFramework
 
         if (m_rootInstance != nullptr)
         {
-            // Need to save off the template id to remove the template after the instance is deleted.
-            Prefab::TemplateId templateId = m_rootInstance->GetTemplateId();
             m_rootInstance.reset();
-            if (templateId != Prefab::InvalidTemplateId)
-            {
-                // Remove the template here so that if we're in a Deactivate/Activate cycle, it can recreate the template/rootInstance
-                // correctly
-                m_prefabSystemComponent->RemoveTemplate(templateId);
-            }
+            m_prefabSystemComponent->RemoveAllTemplates();
         }
     }
 
@@ -95,7 +88,7 @@ namespace AzToolsFramework
             if (templateId != Prefab::InvalidTemplateId)
             {
                 m_rootInstance->SetTemplateId(Prefab::InvalidTemplateId);
-                m_prefabSystemComponent->RemoveTemplate(templateId);
+                m_prefabSystemComponent->RemoveAllTemplates();
             }
             m_rootInstance->SetContainerEntityName("Level");
         }
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabInstanceToTemplatePropagatorTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabInstanceToTemplatePropagatorTests.cpp
index e3b65db97e..8379992553 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabInstanceToTemplatePropagatorTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabInstanceToTemplatePropagatorTests.cpp
@@ -245,7 +245,9 @@ namespace UnitTest
         m_instanceToTemplateInterface->GenerateDomForInstance(instanceDomBeforeUpdate, *firstInstance);
 
         //remove instance from instance
-        firstInstance->DetachNestedInstance(addedAlias);
+        AZStd::unique_ptr<Instance> detachedInstance = firstInstance->DetachNestedInstance(addedAlias);
+        ASSERT_TRUE(detachedInstance != nullptr);
+        m_prefabSystemComponent->RemoveLink(detachedInstance->GetLinkId());
 
         //create document with after change snapshot
         PrefabDom instanceDomAfterUpdate;
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateInstancesTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateInstancesTests.cpp
index 0d955789ac..baded6d43e 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateInstancesTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateInstancesTests.cpp
@@ -309,6 +309,7 @@ namespace UnitTest
         // and use the updated enclosing Instance to update the PrefabDom of Template.
         AZStd::unique_ptr<Instance> detachedInstance = newEnclosingInstance->DetachNestedInstance(nestedInstanceAliases.front());
         ASSERT_TRUE(detachedInstance);
+        m_prefabSystemComponent->RemoveLink(detachedInstance->GetLinkId());
 
         PrefabDom updatedTemplateDom;
         ASSERT_TRUE(PrefabDomUtils::StoreInstanceInPrefabDom(*newEnclosingInstance, updatedTemplateDom));
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateTemplateTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateTemplateTests.cpp
index 4e7d9d95d1..6f90e245f7 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateTemplateTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUpdateTemplateTests.cpp
@@ -274,6 +274,7 @@ namespace UnitTest
         InstanceAlias aliasOfWheelInstanceToRetain = wheelInstanceAliasesUnderAxle.front();
         AZStd::unique_ptr<Instance> detachedInstance = axleInstance->DetachNestedInstance(wheelInstanceAliasesUnderAxle.back());
         ASSERT_TRUE(detachedInstance);
+        m_prefabSystemComponent->RemoveLink(detachedInstance->GetLinkId());
         PrefabDom updatedAxleInstanceDom;
         ASSERT_TRUE(PrefabDomUtils::StoreInstanceInPrefabDom(*axleInstance, updatedAxleInstanceDom));
         m_prefabSystemComponent->UpdatePrefabTemplate(axleTemplateId, updatedAxleInstanceDom);