diff --git a/public/app/features/alerting/unified/components/rule-editor/AlertRuleForm.tsx b/public/app/features/alerting/unified/components/rule-editor/AlertRuleForm.tsx
index 959ec88e5a3..69c07fd898b 100644
--- a/public/app/features/alerting/unified/components/rule-editor/AlertRuleForm.tsx
+++ b/public/app/features/alerting/unified/components/rule-editor/AlertRuleForm.tsx
@@ -1,22 +1,21 @@
 import { css } from '@emotion/css';
 import React, { FC, useMemo, useState } from 'react';
-import { useForm, FormProvider, UseFormWatch } from 'react-hook-form';
+import { FormProvider, useForm, UseFormWatch } from 'react-hook-form';
 import { useDispatch } from 'react-redux';
 import { Link } from 'react-router-dom';
 
 import { GrafanaTheme2 } from '@grafana/data';
-import { PageToolbar, Button, useStyles2, CustomScrollbar, Spinner, ConfirmModal } from '@grafana/ui';
+import { Button, ConfirmModal, CustomScrollbar, PageToolbar, Spinner, useStyles2 } from '@grafana/ui';
 import { useAppNotification } from 'app/core/copy/appNotification';
 import { useCleanup } from 'app/core/hooks/useCleanup';
 import { useQueryParams } from 'app/core/hooks/useQueryParams';
-import { AccessControlAction } from 'app/types';
 import { RuleWithLocation } from 'app/types/unified-alerting';
 
 import { useUnifiedAlertingSelector } from '../../hooks/useUnifiedAlertingSelector';
 import { deleteRuleAction, saveRuleFormAction } from '../../state/actions';
 import { RuleFormType, RuleFormValues } from '../../types/rule-form';
 import { initialAsyncRequestState } from '../../utils/redux';
-import { rulerRuleToFormValues, getDefaultFormValues, getDefaultQueries } from '../../utils/rule-form';
+import { getDefaultFormValues, getDefaultQueries, rulerRuleToFormValues } from '../../utils/rule-form';
 import * as ruleId from '../../utils/rule-id';
 
 import { CloudEvaluationBehavior } from './CloudEvaluationBehavior';
@@ -156,11 +155,7 @@ export const AlertRuleForm: FC<Props> = ({ existing }) => {
               {showStep2 && (
                 <>
                   {type === RuleFormType.grafana ? <GrafanaEvaluationBehavior /> : <CloudEvaluationBehavior />}
-                  <DetailsStep
-                    folderPermissions={[
-                      existing ? AccessControlAction.AlertingRuleUpdate : AccessControlAction.AlertingRuleCreate,
-                    ]}
-                  />
+                  <DetailsStep initialFolder={defaultValues.folder} />
                   <NotificationsStep />
                 </>
               )}
diff --git a/public/app/features/alerting/unified/components/rule-editor/DetailsStep.tsx b/public/app/features/alerting/unified/components/rule-editor/DetailsStep.tsx
index 44c9ea6afd4..d4d9dd19617 100644
--- a/public/app/features/alerting/unified/components/rule-editor/DetailsStep.tsx
+++ b/public/app/features/alerting/unified/components/rule-editor/DetailsStep.tsx
@@ -1,19 +1,23 @@
 import { css } from '@emotion/css';
 import classNames from 'classnames';
-import React from 'react';
+import React, { useCallback } from 'react';
 import { useFormContext } from 'react-hook-form';
 
 import { GrafanaTheme2 } from '@grafana/data';
 import { Stack } from '@grafana/experimental';
 import { useStyles2, Field, Input, InputControl, Label, Tooltip, Icon } from '@grafana/ui';
+import { FolderPickerFilter } from 'app/core/components/Select/FolderPicker';
+import { contextSrv } from 'app/core/services/context_srv';
+import { DashboardSearchHit } from 'app/features/search/types';
+import { AccessControlAction } from 'app/types';
 
-import { RuleFormType, RuleFormValues } from '../../types/rule-form';
+import { RuleForm, RuleFormType, RuleFormValues } from '../../types/rule-form';
 
 import AnnotationsField from './AnnotationsField';
 import { GroupAndNamespaceFields } from './GroupAndNamespaceFields';
 import LabelsField from './LabelsField';
 import { RuleEditorSection } from './RuleEditorSection';
-import { RuleFolderPicker, Folder, RuleFolderPickerProps } from './RuleFolderPicker';
+import { RuleFolderPicker, Folder } from './RuleFolderPicker';
 import { checkForPathSeparator } from './util';
 
 const recordingRuleNameValidationPattern = {
@@ -23,10 +27,10 @@ const recordingRuleNameValidationPattern = {
 };
 
 interface DetailsStepProps {
-  folderPermissions: RuleFolderPickerProps['folderPermissions'];
+  initialFolder: RuleForm | null;
 }
 
-export const DetailsStep = ({ folderPermissions }: DetailsStepProps) => {
+export const DetailsStep = ({ initialFolder }: DetailsStepProps) => {
   const {
     register,
     watch,
@@ -39,6 +43,8 @@ export const DetailsStep = ({ folderPermissions }: DetailsStepProps) => {
   const dataSourceName = watch('dataSourceName');
   const type = watch('type');
 
+  const folderFilter = useRuleFolderFilter(initialFolder);
+
   return (
     <RuleEditorSection
       stepNo={type === RuleFormType.cloudRecording ? 2 : 3}
@@ -110,9 +116,9 @@ export const DetailsStep = ({ folderPermissions }: DetailsStepProps) => {
                 <RuleFolderPicker
                   inputId="folder"
                   {...field}
-                  enableCreateNew={true}
+                  enableCreateNew={contextSrv.hasPermission(AccessControlAction.FoldersCreate)}
                   enableReset={true}
-                  folderPermissions={folderPermissions}
+                  filter={folderFilter}
                 />
               )}
               name="folder"
@@ -147,12 +153,40 @@ export const DetailsStep = ({ folderPermissions }: DetailsStepProps) => {
   );
 };
 
+const useRuleFolderFilter = (existingRuleForm: RuleForm | null) => {
+  const isSearchHitAvailable = useCallback(
+    (hit: DashboardSearchHit) => {
+      const rbacDisabledFallback = contextSrv.hasEditPermissionInFolders;
+
+      const canCreateRuleInFolder = contextSrv.hasAccessInMetadata(
+        AccessControlAction.AlertingRuleCreate,
+        hit,
+        rbacDisabledFallback
+      );
+
+      const canUpdateInCurrentFolder =
+        existingRuleForm &&
+        hit.folderId === existingRuleForm.id &&
+        contextSrv.hasAccessInMetadata(AccessControlAction.AlertingRuleUpdate, hit, rbacDisabledFallback);
+
+      return canCreateRuleInFolder || canUpdateInCurrentFolder;
+    },
+    [existingRuleForm]
+  );
+
+  return useCallback<FolderPickerFilter>(
+    (folderHits) => folderHits.filter(isSearchHitAvailable),
+    [isSearchHitAvailable]
+  );
+};
+
 const getStyles = (theme: GrafanaTheme2) => ({
   alignBaseline: css`
     align-items: baseline;
   `,
   formInput: css`
     width: 330px;
+
     & + & {
       margin-left: ${theme.spacing(3)};
     }
diff --git a/public/app/features/alerting/unified/components/rule-editor/RuleFolderPicker.tsx b/public/app/features/alerting/unified/components/rule-editor/RuleFolderPicker.tsx
index df62d72c27f..705684bdf01 100644
--- a/public/app/features/alerting/unified/components/rule-editor/RuleFolderPicker.tsx
+++ b/public/app/features/alerting/unified/components/rule-editor/RuleFolderPicker.tsx
@@ -1,8 +1,6 @@
-import React, { FC, useCallback } from 'react';
+import React, { FC } from 'react';
 
-import { FolderPicker, FolderPickerFilter, Props as FolderPickerProps } from 'app/core/components/Select/FolderPicker';
-import { contextSrv } from 'app/core/services/context_srv';
-import { DashboardSearchHit } from 'app/features/search/types';
+import { FolderPicker, Props as FolderPickerProps } from 'app/core/components/Select/FolderPicker';
 import { AccessControlAction, PermissionLevelString } from 'app/types';
 
 export interface Folder {
@@ -17,33 +15,15 @@ export interface RuleFolderPickerProps extends Omit<FolderPickerProps, 'initialT
 }
 
 export const RuleFolderPicker: FC<RuleFolderPickerProps> = ({ value, folderPermissions = [], ...props }) => {
-  const folderFilter = useFolderPermissionFilter(folderPermissions);
-
   return (
     <FolderPicker
       showRoot={false}
       allowEmpty={true}
       initialTitle={value?.title}
       initialFolderId={value?.id}
-      filter={folderFilter}
       accessControlMetadata
       {...props}
       permissionLevel={PermissionLevelString.View}
     />
   );
 };
-
-const useFolderPermissionFilter = (permissions: AccessControlAction[]) => {
-  const permissionFilter = getFolderPermissionFilter(permissions);
-  return useCallback<FolderPickerFilter>(permissionFilter, [permissionFilter]);
-};
-
-function getFolderPermissionFilter(permissions: AccessControlAction[]): FolderPickerFilter {
-  return (folderHits: DashboardSearchHit[]) => {
-    return folderHits.filter((hit) =>
-      permissions.every((permission) =>
-        contextSrv.hasAccessInMetadata(permission, hit, contextSrv.hasEditPermissionInFolders)
-      )
-    );
-  };
-}
diff --git a/public/app/features/alerting/unified/types/rule-form.ts b/public/app/features/alerting/unified/types/rule-form.ts
index 068dd2d3e2c..3a097ab778b 100644
--- a/public/app/features/alerting/unified/types/rule-form.ts
+++ b/public/app/features/alerting/unified/types/rule-form.ts
@@ -6,6 +6,11 @@ export enum RuleFormType {
   cloudRecording = 'cloud-recording',
 }
 
+export interface RuleForm {
+  title: string;
+  id: number;
+}
+
 export interface RuleFormValues {
   // common
   name: string;
@@ -21,7 +26,7 @@ export interface RuleFormValues {
   condition: string | null; // refId of the query that gets alerted on
   noDataState: GrafanaAlertStateDecision;
   execErrState: GrafanaAlertStateDecision;
-  folder: { title: string; id: number } | null;
+  folder: RuleForm | null;
   evaluateEvery: string;
   evaluateFor: string;