diff --git a/Code/Framework/AzCore/AzCore/Serialization/Json/JsonMerger.cpp b/Code/Framework/AzCore/AzCore/Serialization/Json/JsonMerger.cpp
index 61869b7eb5..51e47840c9 100644
--- a/Code/Framework/AzCore/AzCore/Serialization/Json/JsonMerger.cpp
+++ b/Code/Framework/AzCore/AzCore/Serialization/Json/JsonMerger.cpp
@@ -110,7 +110,15 @@ namespace AZ
 
             if (result.GetProcessing() == Processing::Halted)
             {
-                return result;
+                ResultCode reportedResult = settings.m_reporting(R"(One of the patches couldn't be applied correctly.)", result, element);
+                if (reportedResult.GetOutcome() == Outcomes::PartialSkip)
+                {
+                    result = reportedResult;
+                }
+                else
+                {
+                    return result;
+                }
             }
         }
 
diff --git a/Code/Framework/AzCore/Tests/Serialization/Json/TestCases_Patching.cpp b/Code/Framework/AzCore/Tests/Serialization/Json/TestCases_Patching.cpp
index ae2dea4e48..046bb88d76 100644
--- a/Code/Framework/AzCore/Tests/Serialization/Json/TestCases_Patching.cpp
+++ b/Code/Framework/AzCore/Tests/Serialization/Json/TestCases_Patching.cpp
@@ -6,6 +6,7 @@
  */
 
 #include <AzCore/Math/Vector3.h>
+#include <AzCore/Serialization/Json/JsonSerializationSettings.h>
 #include <AzCore/std/string/string_view.h>
 #include <Tests/Serialization/Json/JsonSerializationTests.h>
 
@@ -43,7 +44,9 @@ namespace JsonSerializationTests
         }
 
         void CheckApplyPatchOutcome(const char* target, const char* patch,
-            AZ::JsonSerializationResult::Outcomes outcome, AZ::JsonSerializationResult::Processing processing)
+            AZ::JsonSerializationResult::Outcomes outcome,
+            AZ::JsonSerializationResult::Processing processing,
+            const AZ::JsonApplyPatchSettings& settings = AZ::JsonApplyPatchSettings{})
         {
             m_jsonDocument->Parse(target);
             ASSERT_FALSE(m_jsonDocument->HasParseError());
@@ -53,12 +56,27 @@ namespace JsonSerializationTests
             ASSERT_FALSE(patchDocument.HasParseError());
 
             AZ::JsonSerializationResult::ResultCode result = AZ::JsonSerialization::ApplyPatch(*m_jsonDocument,
-                m_jsonDocument->GetAllocator(), patchDocument, AZ::JsonMergeApproach::JsonPatch);
+                m_jsonDocument->GetAllocator(), patchDocument, AZ::JsonMergeApproach::JsonPatch, settings);
             EXPECT_EQ(result.GetTask(), AZ::JsonSerializationResult::Tasks::Merge);
             EXPECT_EQ(result.GetOutcome(), outcome);
             EXPECT_EQ(result.GetProcessing(), processing);
         }
 
+        void CheckApplyPatchOutcome(
+            const char* target,
+            const char* patch,
+            const char* expectedPatchedResult,
+            AZ::JsonSerializationResult::Outcomes outcome,
+            AZ::JsonSerializationResult::Processing processing,
+            const AZ::JsonApplyPatchSettings& settings = AZ::JsonApplyPatchSettings{})
+        {
+            CheckApplyPatchOutcome(target, patch, outcome, processing, settings);
+            rapidjson::Document expectedPatchedDocument;
+            expectedPatchedDocument.Parse(expectedPatchedResult);
+            ASSERT_FALSE(expectedPatchedDocument.HasParseError());
+            EXPECT_EQ(AZ::JsonSerialization::Compare(expectedPatchedDocument, *m_jsonDocument), AZ::JsonSerializerCompareResult::Equal);
+        }
+
         void CheckCreatePatch_Core(const char* source, AZStd::string_view patch, const char* target,
             AZ::JsonMergeApproach approach)
         {
@@ -262,6 +280,36 @@ namespace JsonSerializationTests
             Outcomes::TypeMismatch, Processing::Halted);
     }
 
+    TEST_F(JsonPatchingSerializationTests, ApplyPatch_UseJsonPatchWithCustomReportingCallback_ReportPartialSkip)
+    {
+        using namespace AZ::JsonSerializationResult;
+        auto issueReportingCallback = [](AZStd::string_view, AZ::JsonSerializationResult::ResultCode result,
+                                         AZStd::string_view) -> AZ::JsonSerializationResult::ResultCode
+        {
+            using namespace AZ::JsonSerializationResult;
+            if (result.GetProcessing() == Processing::Halted)
+            {
+                return ResultCode(result.GetTask(), Outcomes::PartialSkip);
+            }
+            return result;
+        };
+
+        AZ::JsonApplyPatchSettings applyPatchSettings;
+        applyPatchSettings.m_reporting = AZStd::move(issueReportingCallback);
+        CheckApplyPatchOutcome(
+            R"({})",
+            R"([
+                { "op": "add", "path": "/nonexistent_key/new_member", "value": "someValue" },
+                { "op": "add", "path": "/test", "value": "someValue" }
+            ])",
+            R"(
+                { "test": "someValue" }
+            )",
+            Outcomes::PartialSkip,
+            Processing::Completed,
+            AZStd::move(applyPatchSettings));
+    }
+
     TEST_F(JsonPatchingSerializationTests, ApplyPatch_UseJsonPatchAddUnnamedMember_ReportsSuccess)
     {
         CheckApplyPatch(
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Instance/InstanceToTemplatePropagator.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Instance/InstanceToTemplatePropagator.cpp
index 720c14ed36..03d4b14190 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Instance/InstanceToTemplatePropagator.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Instance/InstanceToTemplatePropagator.cpp
@@ -172,20 +172,23 @@ namespace AzToolsFramework
             PrefabDom& templateDomReference = m_prefabSystemComponentInterface->FindTemplateDom(templateId);
 
             //apply patch to template
-            AZ::JsonSerializationResult::ResultCode result = AZ::JsonSerialization::ApplyPatch(templateDomReference,
-                templateDomReference.GetAllocator(), providedPatch, AZ::JsonMergeApproach::JsonPatch);
+            AZ::JsonSerializationResult::ResultCode result =
+                PrefabDomUtils::ApplyPatches(templateDomReference, templateDomReference.GetAllocator(), providedPatch);
 
             //trigger propagation
-            if (result.GetOutcome() == AZ::JsonSerializationResult::Outcomes::Success)
+            if (result.GetOutcome() != AZ::JsonSerializationResult::Outcomes::Success)
             {
-                m_prefabSystemComponentInterface->SetTemplateDirtyFlag(templateId, true);
-                m_prefabSystemComponentInterface->PropagateTemplateChanges(templateId, instanceToExclude);
-                return true;
+                AZ_Error("Prefab", false, "Patch was not successfully applied.");
+                return false; 
             }
             else
             {
-                AZ_Error("Prefab", false, "Patch was not successfully applied");
-                return false;
+                AZ_Error(
+                    "Prefab", result.GetOutcome() != AZ::JsonSerializationResult::Outcomes::PartialSkip,
+                    "Some of the patches are not successfully applied.");
+                m_prefabSystemComponentInterface->SetTemplateDirtyFlag(templateId, true);
+                m_prefabSystemComponentInterface->PropagateTemplateChanges(templateId, instanceToExclude);
+                return true;
             }
         }
 
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Link/Link.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Link/Link.cpp
index 1d27fa6375..333c3f2dbc 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Link/Link.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/Link/Link.cpp
@@ -176,12 +176,17 @@ namespace AzToolsFramework
             }
             else
             {
-                AZ::JsonSerializationResult::ResultCode applyPatchResult = AZ::JsonSerialization::ApplyPatch(
-                    sourceTemplateDomCopy,
-                    targetTemplatePrefabDom.GetAllocator(),
-                    patchesReference->get(),
-                    AZ::JsonMergeApproach::JsonPatch);
+                AZ::JsonSerializationResult::ResultCode applyPatchResult =
+                    PrefabDomUtils::ApplyPatches(sourceTemplateDomCopy, targetTemplatePrefabDom.GetAllocator(), patchesReference->get());
                 linkedInstanceDom.CopyFrom(sourceTemplateDomCopy, targetTemplatePrefabDom.GetAllocator());
+
+                PrefabDomValueReference sourceTemplateName =
+                    PrefabDomUtils::FindPrefabDomValue(sourceTemplateDomCopy, PrefabDomUtils::SourceName);
+                AZ_Assert(sourceTemplateName && sourceTemplateName->get().IsString(), "A valid source template name couldn't be found");
+                PrefabDomValueReference targetTemplateName =
+                    PrefabDomUtils::FindPrefabDomValue(targetTemplatePrefabDom, PrefabDomUtils::SourceName);
+                AZ_Assert(targetTemplateName && targetTemplateName->get().IsString(), "A valid target template name couldn't be found");
+
                 if (applyPatchResult.GetProcessing() != AZ::JsonSerializationResult::Processing::Completed)
                 {
                     AZ_Error(
@@ -190,6 +195,14 @@ namespace AzToolsFramework
                         m_sourceTemplateId, m_targetTemplateId);
                     return false;
                 }
+                if (applyPatchResult.GetOutcome() == AZ::JsonSerializationResult::Outcomes::PartialSkip)
+                {
+                    AZ_Error(
+                        "Prefab", false,
+                        "Link::UpdateTarget - Some of the patches couldn't be applied on the source template '%s' present under the  "
+                        "target Template '%s'.",
+                        sourceTemplateName->get().GetString(), targetTemplateName->get().GetString());
+                }
             }
 
             // This is a guardrail to ensure the linked instance dom always has the LinkId value
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
index bac63d94b4..86137ae547 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.cpp
@@ -236,6 +236,26 @@ namespace AzToolsFramework
                 return findInstancesResult->get();
             }
 
+            AZ::JsonSerializationResult::ResultCode ApplyPatches(
+                PrefabDomValue& prefabDomToApplyPatchesOn, PrefabDom::AllocatorType& allocator, const PrefabDomValue& patches)
+            {
+                auto issueReportingCallback = [](AZStd::string_view, AZ::JsonSerializationResult::ResultCode result,
+                                                 AZStd::string_view) -> AZ::JsonSerializationResult::ResultCode
+                {
+                    using namespace AZ::JsonSerializationResult;
+                    if (result.GetProcessing() == Processing::Halted)
+                    {
+                        return ResultCode(result.GetTask(), Outcomes::PartialSkip);
+                    }
+                    return result;
+                };
+
+                AZ::JsonApplyPatchSettings applyPatchSettings;
+                applyPatchSettings.m_reporting = AZStd::move(issueReportingCallback);
+                return AZ::JsonSerialization::ApplyPatch(
+                    prefabDomToApplyPatchesOn, allocator, patches, AZ::JsonMergeApproach::JsonPatch, applyPatchSettings);
+            }
+
             void PrintPrefabDomValue(
                 [[maybe_unused]] const AZStd::string_view printMessage,
                 [[maybe_unused]] const PrefabDomValue& prefabDomValue)
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
index 709461022e..4d4b7a3e32 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabDomUtils.h
@@ -7,6 +7,7 @@
 
 #pragma once
 
+#include <AzCore/Serialization/Json/JsonSerializationResult.h>
 #include <AzCore/std/optional.h>
 #include <AzCore/Asset/AssetCommon.h>
 #include <AzToolsFramework/Prefab/Instance/Instance.h>
@@ -122,6 +123,11 @@ namespace AzToolsFramework
              */
             PrefabDomValueConstReference GetInstancesValue(const PrefabDomValue& prefabDom);
 
+            AZ::JsonSerializationResult::ResultCode ApplyPatches(
+                PrefabDomValue& prefabDomToApplyPatchesOn,
+                PrefabDom::AllocatorType& allocator,
+                const PrefabDomValue& patches);
+
             /**
              * Prints the contents of the given prefab DOM value to the debug output console in a readable format.
              * @param printMessage The message that will be printed before printing the PrefabDomValue
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
index e29c33a21f..728b95f74b 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Prefab/PrefabUndo.cpp
@@ -261,8 +261,13 @@ namespace AzToolsFramework
             instanceDom.CopyFrom(instanceDomRef->get(), instanceDom.GetAllocator());
 
             //apply the patch to the template within the target
-            AZ::JsonSerializationResult::ResultCode result = AZ::JsonSerialization::ApplyPatch(instanceDom,
-                instanceDom.GetAllocator(), patch, AZ::JsonMergeApproach::JsonPatch);
+            AZ::JsonSerializationResult::ResultCode result = PrefabDomUtils::ApplyPatches(instanceDom, instanceDom.GetAllocator(), patch);
+
+            AZ_Error(
+                "Prefab",
+                result.GetOutcome() != AZ::JsonSerializationResult::Outcomes::PartialSkip &&
+                    result.GetOutcome() != AZ::JsonSerializationResult::Outcomes::Success,
+                "Some of the patches are not successfully applied.");
 
             //remove the link id placed into the instance
             auto linkIdIter = instanceDom.FindMember(PrefabDomUtils::LinkIdName);
diff --git a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
index cdc5faaef0..253671189d 100644
--- a/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
+++ b/Code/Framework/AzToolsFramework/Tests/Prefab/PrefabUndoLinkTests.cpp
@@ -96,8 +96,8 @@ namespace UnitTest
 
         //apply the patch
         PrefabDom& templateDomReference = m_prefabSystemComponent->FindTemplateDom(nestedTemplateId);
-        AZ::JsonSerializationResult::ResultCode result = AZ::JsonSerialization::ApplyPatch(templateDomReference,
-            templateDomReference.GetAllocator(), patch, AZ::JsonMergeApproach::JsonPatch);
+        AZ::JsonSerializationResult::ResultCode result =
+            PrefabDomUtils::ApplyPatches(templateDomReference, templateDomReference.GetAllocator(), patch);
 
         AZ_Error("Prefab", result.GetOutcome() == AZ::JsonSerializationResult::Outcomes::Success,
             "Patch was not successfully applied");