diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipInterface.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipInterface.h
index a26c3b0ecf..32ea9db3da 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipInterface.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipInterface.h
@@ -57,6 +57,6 @@ namespace AzToolsFramework
         virtual void StartPlayInEditor() = 0;
         virtual void StopPlayInEditor() = 0;
 
-        virtual void CreateNewLevelPrefab(AZStd::string_view filename) = 0;
+        virtual void CreateNewLevelPrefab(AZStd::string_view filename, const AZStd::string& templateFilename) = 0;
     };
 }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
index b2b36cc318..439789f11b 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.cpp
@@ -265,7 +265,7 @@ namespace AzToolsFramework
         return false;
     }
 
-    void PrefabEditorEntityOwnershipService::CreateNewLevelPrefab(AZStd::string_view filename)
+    void PrefabEditorEntityOwnershipService::CreateNewLevelPrefab(AZStd::string_view filename, const AZStd::string& templateFilename)
     {
         AZ::IO::Path relativePath = m_loaderInterface->GetRelativePathToProject(filename);
         AzToolsFramework::Prefab::TemplateId templateId = m_prefabSystemComponent->GetTemplateIdFromFilePath(relativePath);
@@ -276,7 +276,7 @@ namespace AzToolsFramework
         AZ::Data::AssetInfo assetInfo;
         bool sourceInfoFound = false;
         AzToolsFramework::AssetSystemRequestBus::BroadcastResult(
-            sourceInfoFound, &AzToolsFramework::AssetSystemRequestBus::Events::GetSourceInfoBySourcePath, DefaultLevelTemplateName,
+            sourceInfoFound, &AzToolsFramework::AssetSystemRequestBus::Events::GetSourceInfoBySourcePath, templateFilename.c_str(),
             assetInfo, watchFolder);
 
         if (sourceInfoFound)
@@ -292,7 +292,7 @@ namespace AzToolsFramework
             levelDefaultDom.CopyFrom(dom, levelDefaultDom.GetAllocator());
 
             Prefab::PrefabDomPath sourcePath("/Source");
-            sourcePath.Set(levelDefaultDom, assetInfo.m_relativePath.c_str());
+            sourcePath.Set(levelDefaultDom, relativePath.c_str());
 
             templateId = m_prefabSystemComponent->AddTemplate(relativePath, AZStd::move(levelDefaultDom));
         }
diff --git a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.h b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.h
index 915cafd316..d8eb81dd40 100644
--- a/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.h
+++ b/Code/Framework/AzToolsFramework/AzToolsFramework/Entity/PrefabEditorEntityOwnershipService.h
@@ -170,7 +170,7 @@ namespace AzToolsFramework
         void StartPlayInEditor() override;
         void StopPlayInEditor() override;
 
-        void CreateNewLevelPrefab(AZStd::string_view filename) override;
+        void CreateNewLevelPrefab(AZStd::string_view filename, const AZStd::string& templateFilename) override;
 
     protected:
 
@@ -218,7 +218,5 @@ namespace AzToolsFramework
         Prefab::PrefabLoaderInterface* m_loaderInterface;
         AzFramework::EntityContextId m_entityContextId;
         AZ::SerializeContext m_serializeContext;
-
-        static inline constexpr const char* DefaultLevelTemplateName = "Prefabs/Default_Level.prefab";
     };
 }
diff --git a/Code/Sandbox/Editor/CryEdit.cpp b/Code/Sandbox/Editor/CryEdit.cpp
index 5fd6eb2692..a0ff5d7eff 100644
--- a/Code/Sandbox/Editor/CryEdit.cpp
+++ b/Code/Sandbox/Editor/CryEdit.cpp
@@ -3111,7 +3111,7 @@ CCryEditApp::ECreateLevelResult CCryEditApp::CreateLevel(const QString& levelNam
         auto* service = AZ::Interface<AzToolsFramework::PrefabEditorEntityOwnershipInterface>::Get();
         if (service)
         {
-            service->CreateNewLevelPrefab((const char*)fullyQualifiedLevelName.toUtf8());
+            service->CreateNewLevelPrefab(fullyQualifiedLevelName.toUtf8().constData(), DefaultLevelTemplateName);
         }
     }
 
diff --git a/Code/Sandbox/Editor/CryEdit.h b/Code/Sandbox/Editor/CryEdit.h
index 2e71ca6a58..d4c1304b6a 100644
--- a/Code/Sandbox/Editor/CryEdit.h
+++ b/Code/Sandbox/Editor/CryEdit.h
@@ -358,6 +358,8 @@ AZ_PUSH_DISABLE_DLL_EXPORT_MEMBER_WARNING
 AZ_POP_DISABLE_DLL_EXPORT_MEMBER_WARNING 
 
 private:
+    static inline constexpr const char* DefaultLevelTemplateName = "Prefabs/Default_Level.prefab";
+
     struct PythonOutputHandler;
     AZ_PUSH_DISABLE_DLL_EXPORT_MEMBER_WARNING
     AZStd::shared_ptr<PythonOutputHandler> m_pythonOutputHandler;