diff --git a/packages/grafana-data/src/datetime/parser.test.ts b/packages/grafana-data/src/datetime/parser.test.ts
index f19ddb87ae7..0edfd577612 100644
--- a/packages/grafana-data/src/datetime/parser.test.ts
+++ b/packages/grafana-data/src/datetime/parser.test.ts
@@ -23,6 +23,18 @@ describe('dateTimeParse', () => {
     expect(date.format()).toEqual('2020-08-20T10:30:20Z');
   });
 
+  it('should be able to parse ISO 8601 date strings when useBrowserLocale is true', () => {
+    systemDateFormats.update({
+      fullDate: 'YYYY-MM-DD HH:mm:ss.SSS',
+      interval: {} as SystemDateFormatsState['interval'],
+      useBrowserLocale: true,
+    });
+
+    const date = dateTimeParse('2025-03-12T07:09:37.253Z', { timeZone: 'browser' });
+    expect(date.isValid()).toBe(true);
+    expect(date.format()).toEqual('2025-03-12T02:09:37-05:00');
+  });
+
   it('should be able to parse array formats used by calendar', () => {
     const date = dateTimeParse([2020, 5, 10, 10, 30, 20], { timeZone: 'utc' });
     expect(date.format()).toEqual('2020-06-10T10:30:20Z');
diff --git a/packages/grafana-data/src/datetime/parser.ts b/packages/grafana-data/src/datetime/parser.ts
index 5e1bf608401..6f3473d7858 100644
--- a/packages/grafana-data/src/datetime/parser.ts
+++ b/packages/grafana-data/src/datetime/parser.ts
@@ -53,12 +53,12 @@ export const dateTimeParse: DateTimeParser<DateTimeOptionsWhenParsing> = (value,
 };
 
 const parseString = (value: string, options?: DateTimeOptionsWhenParsing): DateTime => {
+  const parsed = parse(value, options?.roundUp, options?.timeZone, options?.fiscalYearStartMonth);
   if (value.indexOf('now') !== -1) {
     if (!isValid(value)) {
       return dateTime();
     }
 
-    const parsed = parse(value, options?.roundUp, options?.timeZone, options?.fiscalYearStartMonth);
     return parsed || dateTime();
   }
 
@@ -70,6 +70,12 @@ const parseString = (value: string, options?: DateTimeOptionsWhenParsing): DateT
     return dateTimeForTimeZone(zone.name, value, format);
   }
 
+  if (format === systemDateFormats.fullDate) {
+    // We use parsed here to handle case when `use_browser_locale` is true
+    // We need to pass the parsed value to handle case when value is an ISO 8601 date string
+    return dateTime(parsed, format);
+  }
+
   switch (lowerCase(timeZone)) {
     case 'utc':
       return toUtc(value, format);