diff --git a/public/app/features/dashboard-scene/panel-edit/PanelEditor.tsx b/public/app/features/dashboard-scene/panel-edit/PanelEditor.tsx
index 7d2a1ceee2e..cb1a6eb4d8d 100644
--- a/public/app/features/dashboard-scene/panel-edit/PanelEditor.tsx
+++ b/public/app/features/dashboard-scene/panel-edit/PanelEditor.tsx
@@ -20,6 +20,7 @@ export interface PanelEditorState extends SceneObjectState {
   dataPane?: PanelDataPane;
   vizManager: VizPanelManager;
   showLibraryPanelSaveModal?: boolean;
+  showLibraryPanelUnlinkModal?: boolean;
 }
 
 export class PanelEditor extends SceneObjectBase<PanelEditorState> {
@@ -212,9 +213,22 @@ export class PanelEditor extends SceneObjectBase<PanelEditorState> {
     locationService.partial({ editPanel: null });
   };
 
-  public onDismissLibraryPanelModal = () => {
+  public onDismissLibraryPanelSaveModal = () => {
     this.setState({ showLibraryPanelSaveModal: false });
   };
+
+  public onUnlinkLibraryPanel = () => {
+    this.setState({ showLibraryPanelUnlinkModal: true });
+  };
+
+  public onDismissUnlinkLibraryPanelModal = () => {
+    this.setState({ showLibraryPanelUnlinkModal: false });
+  };
+
+  public onConfirmUnlinkLibraryPanel = () => {
+    this.state.vizManager.unlinkLibraryPanel();
+    this.setState({ showLibraryPanelUnlinkModal: false });
+  };
 }
 
 export function buildPanelEditScene(panel: VizPanel): PanelEditor {
diff --git a/public/app/features/dashboard-scene/panel-edit/PanelEditorRenderer.tsx b/public/app/features/dashboard-scene/panel-edit/PanelEditorRenderer.tsx
index 38270d798f8..73da63e67ae 100644
--- a/public/app/features/dashboard-scene/panel-edit/PanelEditorRenderer.tsx
+++ b/public/app/features/dashboard-scene/panel-edit/PanelEditorRenderer.tsx
@@ -6,6 +6,7 @@ import { SceneComponentProps } from '@grafana/scenes';
 import { Button, ToolbarButton, useStyles2 } from '@grafana/ui';
 
 import { NavToolbarActions } from '../scene/NavToolbarActions';
+import { UnlinkModal } from '../scene/UnlinkModal';
 import { getDashboardSceneFor, getLibraryPanel } from '../utils/utils';
 
 import { PanelEditor } from './PanelEditor';
@@ -58,7 +59,7 @@ export function PanelEditorRenderer({ model }: SceneComponentProps<PanelEditor>)
 
 function VizAndDataPane({ model }: SceneComponentProps<PanelEditor>) {
   const dashboard = getDashboardSceneFor(model);
-  const { vizManager, dataPane, showLibraryPanelSaveModal } = model.useState();
+  const { vizManager, dataPane, showLibraryPanelSaveModal, showLibraryPanelUnlinkModal } = model.useState();
   const { sourcePanel } = vizManager.useState();
   const libraryPanel = getLibraryPanel(sourcePanel.resolve());
   const { controls } = dashboard.useState();
@@ -88,11 +89,18 @@ function VizAndDataPane({ model }: SceneComponentProps<PanelEditor>) {
         {showLibraryPanelSaveModal && libraryPanel && (
           <SaveLibraryVizPanelModal
             libraryPanel={libraryPanel}
-            onDismiss={model.onDismissLibraryPanelModal}
+            onDismiss={model.onDismissLibraryPanelSaveModal}
             onConfirm={model.onConfirmSaveLibraryPanel}
             onDiscard={model.onDiscard}
           ></SaveLibraryVizPanelModal>
         )}
+        {showLibraryPanelUnlinkModal && libraryPanel && (
+          <UnlinkModal
+            onDismiss={model.onDismissUnlinkLibraryPanelModal}
+            onConfirm={model.onConfirmUnlinkLibraryPanel}
+            isOpen
+          />
+        )}
         {dataPane && (
           <>
             <div {...splitterProps} />
diff --git a/public/app/features/dashboard-scene/panel-edit/VizPanelManager.test.tsx b/public/app/features/dashboard-scene/panel-edit/VizPanelManager.test.tsx
index 3e13b91c3bc..98f4a7143c7 100644
--- a/public/app/features/dashboard-scene/panel-edit/VizPanelManager.test.tsx
+++ b/public/app/features/dashboard-scene/panel-edit/VizPanelManager.test.tsx
@@ -250,6 +250,40 @@ describe('VizPanelManager', () => {
 
       expect(apiCall.mock.calls[0][0].state.panel?.state.title).toBe('new title');
     });
+
+    it('unlinks library panel', () => {
+      const panel = new VizPanel({
+        key: 'panel-1',
+        pluginId: 'text',
+      });
+
+      const libraryPanelModel = {
+        title: 'title',
+        uid: 'uid',
+        name: 'libraryPanelName',
+        model: vizPanelToPanel(panel),
+        type: 'panel',
+        version: 1,
+      };
+
+      const libraryPanel = new LibraryVizPanel({
+        isLoaded: true,
+        title: libraryPanelModel.title,
+        uid: libraryPanelModel.uid,
+        name: libraryPanelModel.name,
+        panelKey: panel.state.key!,
+        panel: panel,
+        _loadedPanel: libraryPanelModel,
+      });
+
+      const gridItem = new SceneGridItem({ body: libraryPanel });
+
+      const panelManager = VizPanelManager.createFor(panel);
+      panelManager.unlinkLibraryPanel();
+
+      const sourcePanel = panelManager.state.sourcePanel.resolve();
+      expect(sourcePanel.parent?.state.key).toBe(gridItem.state.key);
+    });
   });
 
   describe('query options', () => {
diff --git a/public/app/features/dashboard-scene/panel-edit/VizPanelManager.tsx b/public/app/features/dashboard-scene/panel-edit/VizPanelManager.tsx
index 5f8c78e5b6a..94d9e62fce0 100644
--- a/public/app/features/dashboard-scene/panel-edit/VizPanelManager.tsx
+++ b/public/app/features/dashboard-scene/panel-edit/VizPanelManager.tsx
@@ -338,6 +338,24 @@ export class VizPanelManager extends SceneObjectBase<VizPanelManagerState> {
     });
   }
 
+  public unlinkLibraryPanel() {
+    const sourcePanel = this.state.sourcePanel.resolve();
+    if (!(sourcePanel.parent instanceof LibraryVizPanel)) {
+      throw new Error('VizPanel is not a child of a library panel');
+    }
+
+    const gridItem = sourcePanel.parent.parent;
+    if (!(gridItem instanceof SceneGridItem)) {
+      throw new Error('Library panel not a child of a grid item');
+    }
+
+    const newSourcePanel = this.state.panel.clone({ $data: this.state.$data?.clone() });
+    gridItem.setState({
+      body: newSourcePanel,
+    });
+    this.setState({ sourcePanel: newSourcePanel.getRef() });
+  }
+
   public commitChanges() {
     const sourcePanel = this.state.sourcePanel.resolve();
 
diff --git a/public/app/features/dashboard-scene/scene/NavToolbarActions.tsx b/public/app/features/dashboard-scene/scene/NavToolbarActions.tsx
index 9bfd56f1555..ab171dcd870 100644
--- a/public/app/features/dashboard-scene/scene/NavToolbarActions.tsx
+++ b/public/app/features/dashboard-scene/scene/NavToolbarActions.tsx
@@ -1,5 +1,5 @@
 import { css } from '@emotion/css';
-import React from 'react';
+import React, { useEffect, useState } from 'react';
 
 import { GrafanaTheme2 } from '@grafana/data';
 import { selectors } from '@grafana/e2e-selectors';
@@ -8,10 +8,11 @@ import { Button, ButtonGroup, Dropdown, Icon, Menu, ToolbarButton, ToolbarButton
 import { AppChromeUpdate } from 'app/core/components/AppChrome/AppChromeUpdate';
 import { NavToolbarSeparator } from 'app/core/components/AppChrome/NavToolbar/NavToolbarSeparator';
 import { contextSrv } from 'app/core/core';
-import { t, Trans } from 'app/core/internationalization';
+import { Trans, t } from 'app/core/internationalization';
 import { getDashboardSrv } from 'app/features/dashboard/services/DashboardSrv';
 import { playlistSrv } from 'app/features/playlist/PlaylistSrv';
 
+import { PanelEditor } from '../panel-edit/PanelEditor';
 import { ShareModal } from '../sharing/ShareModal';
 import { DashboardInteractions } from '../utils/interactions';
 import { dynamicDashNavActions } from '../utils/registerDynamicDashNavAction';
@@ -57,9 +58,9 @@ export function ToolbarActions({ dashboard }: Props) {
   const buttonWithExtraMargin = useStyles2(getStyles);
   const isEditingPanel = Boolean(editPanel);
   const isViewingPanel = Boolean(viewPanelScene);
-  const isEditingLibraryPanel = Boolean(
-    editPanel?.state.vizManager.state.sourcePanel.resolve().parent instanceof LibraryVizPanel
-  );
+
+  const isEditingLibraryPanel = useEditingLibraryPanel(editPanel);
+
   const hasCopiedPanel = Boolean(copiedPanel);
 
   toolbarActions.push({
@@ -383,6 +384,23 @@ export function ToolbarActions({ dashboard }: Props) {
     ),
   });
 
+  toolbarActions.push({
+    group: 'main-buttons',
+    condition: isEditingPanel && isEditingLibraryPanel && !editview && !isViewingPanel,
+    render: () => (
+      <Button
+        onClick={editPanel?.onUnlinkLibraryPanel}
+        tooltip="Unlink library panel"
+        size="sm"
+        key="unlinkLibraryPanel"
+        fill="outline"
+        variant="secondary"
+      >
+        Unlink library panel
+      </Button>
+    ),
+  });
+
   toolbarActions.push({
     group: 'main-buttons',
     condition: isEditingPanel && isEditingLibraryPanel && !editview && !isViewingPanel,
@@ -504,6 +522,25 @@ export function ToolbarActions({ dashboard }: Props) {
   return actionElements;
 }
 
+function useEditingLibraryPanel(panelEditor?: PanelEditor) {
+  const [isEditingLibraryPanel, setEditingLibraryPanel] = useState<Boolean>(false);
+
+  useEffect(() => {
+    if (panelEditor) {
+      const unsub = panelEditor.state.vizManager.subscribeToState((vizManagerState) =>
+        setEditingLibraryPanel(vizManagerState.sourcePanel.resolve().parent instanceof LibraryVizPanel)
+      );
+      return () => {
+        unsub.unsubscribe();
+      };
+    }
+    setEditingLibraryPanel(false);
+    return;
+  }, [panelEditor]);
+
+  return isEditingLibraryPanel;
+}
+
 interface ToolbarAction {
   group: string;
   condition?: boolean | string;