diff --git a/pkg/registry/apis/provisioning/register.go b/pkg/registry/apis/provisioning/register.go
index 79559bb2238..e34599c586b 100644
--- a/pkg/registry/apis/provisioning/register.go
+++ b/pkg/registry/apis/provisioning/register.go
@@ -286,7 +286,6 @@ func (b *APIBuilder) GetAuthorizer() authorizer.Authorizer {
 					Namespace:   a.GetNamespace(),
 					Subresource: a.GetSubresource(),
 				})
-
 				if err != nil {
 					return authorizer.DecisionDeny, "failed to perform authorization", err
 				}
@@ -622,7 +621,7 @@ func (b *APIBuilder) verifyAgaintsExistingRepositories(cfg *provisioning.Reposit
 	} else {
 		// Folder sync cannot be created if an instance repository exists
 		for _, v := range all {
-			if v.Spec.Sync.Target == provisioning.SyncTargetTypeInstance {
+			if v.Spec.Sync.Target == provisioning.SyncTargetTypeInstance && v.Name != cfg.Name {
 				return field.Forbidden(field.NewPath("spec", "sync", "target"),
 					"Cannot create folder repository when instance repository exists: "+v.Name)
 			}
diff --git a/pkg/tests/apis/provisioning/helper_test.go b/pkg/tests/apis/provisioning/helper_test.go
index 554ad36bff8..48956371779 100644
--- a/pkg/tests/apis/provisioning/helper_test.go
+++ b/pkg/tests/apis/provisioning/helper_test.go
@@ -468,6 +468,7 @@ type TestRepo struct {
 	Copies             map[string]string
 	ExpectedDashboards int
 	ExpectedFolders    int
+	SkipSync           bool
 }
 
 func (h *provisioningTestHelper) CreateRepo(t *testing.T, repo TestRepo) {
@@ -486,7 +487,7 @@ func (h *provisioningTestHelper) CreateRepo(t *testing.T, repo TestRepo) {
 
 	templateVars := map[string]any{
 		"Name":        repo.Name,
-		"SyncEnabled": true,
+		"SyncEnabled": !repo.SkipSync,
 		"SyncTarget":  repo.Target,
 	}
 	if repo.Path != "" {
@@ -512,11 +513,13 @@ func (h *provisioningTestHelper) CreateRepo(t *testing.T, repo TestRepo) {
 		}
 	}
 
-	// Trigger and wait for initial sync to populate resources
-	h.SyncAndWait(t, repo.Name, nil)
-
-	// Debug state after initial sync
-	h.DebugState(t, repo.Name, "AFTER INITIAL SYNC")
+	if !repo.SkipSync {
+		// Trigger and wait for initial sync to populate resources
+		h.SyncAndWait(t, repo.Name, nil)
+		h.DebugState(t, repo.Name, "AFTER INITIAL SYNC")
+	} else {
+		h.DebugState(t, repo.Name, "AFTER REPO CREATION")
+	}
 
 	// Verify initial state
 	dashboards, err := h.DashboardsV1.Resource.List(t.Context(), metav1.ListOptions{})
diff --git a/pkg/tests/apis/provisioning/repository_test.go b/pkg/tests/apis/provisioning/repository_test.go
index e3213517869..95ebf922dd1 100644
--- a/pkg/tests/apis/provisioning/repository_test.go
+++ b/pkg/tests/apis/provisioning/repository_test.go
@@ -362,9 +362,6 @@ func TestIntegrationProvisioning_InstanceSyncValidation(t *testing.T) {
 	ctx := context.Background()
 
 	t.Run("single instance sync is allowed", func(t *testing.T) {
-		// Ensure clean state
-		helper.CleanupAllRepos(t)
-
 		repoName := "instance-repo-single"
 		testRepo := TestRepo{
 			Name:               repoName,
@@ -381,6 +378,33 @@ func TestIntegrationProvisioning_InstanceSyncValidation(t *testing.T) {
 		helper.CleanupAllRepos(t)
 	})
 
+	t.Run("change between folder and instance sync for the same repository if no previous sync happened", func(t *testing.T) {
+		// Ensure clean state
+		helper.CleanupAllRepos(t)
+
+		repoName := "instance-repo-change"
+		testRepo := TestRepo{
+			Name:               repoName,
+			Target:             "instance",
+			Copies:             map[string]string{}, // No files needed for this test
+			ExpectedDashboards: 0,
+			ExpectedFolders:    0,
+			SkipSync:           true, // To avoid initial sync and stats
+		}
+		helper.CreateRepo(t, testRepo)
+
+		// Change from instance to folder sync
+		repo, err := helper.Repositories.Resource.Get(ctx, repoName, metav1.GetOptions{})
+		require.NoError(t, err, "failed to get repository")
+		err = unstructured.SetNestedField(repo.Object, "folder", "spec", "sync", "target")
+		require.NoError(t, err, "failed to set syncTarget to folder")
+		_, err = helper.Repositories.Resource.Update(ctx, repo, metav1.UpdateOptions{FieldValidation: "Strict"})
+		require.NoError(t, err, "failed to update repository to folder sync")
+
+		// Clean up at end of test
+		helper.CleanupAllRepos(t)
+	})
+
 	t.Run("instance sync rejected when any other repository exists", func(t *testing.T) {
 		// Ensure clean state
 		helper.CleanupAllRepos(t)