diff --git a/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.test.tsx b/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.test.tsx
index eda80c9c822..77bdb1f096e 100644
--- a/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.test.tsx
+++ b/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.test.tsx
@@ -4,7 +4,9 @@ import { TestProvider } from 'test/helpers/TestProvider';
 
 import { PluginSignatureStatus } from '@grafana/data';
 import { config } from '@grafana/runtime';
+import { configureStore } from 'app/store/configureStore';
 
+import { getPluginsStateMock } from '../../__mocks__';
 import { CatalogPlugin, PluginStatus } from '../../types';
 
 import { InstallControlsButton } from './InstallControlsButton';
@@ -91,4 +93,79 @@ describe('InstallControlsButton', () => {
     );
     expect(screen.queryByRole('button')).not.toBeInTheDocument();
   });
+
+  describe('update button on prem', () => {
+    const store = configureStore({
+      plugins: getPluginsStateMock([]),
+    });
+
+    it('should be disabled when is Installing', () => {
+      store.dispatch({ type: 'plugins/install/pending' });
+      render(
+        <TestProvider store={store}>
+          <InstallControlsButton plugin={{ ...plugin }} pluginStatus={PluginStatus.UPDATE} />
+        </TestProvider>
+      );
+      const button = screen.getByText('Updating').closest('button');
+      expect(button).toBeDisabled();
+    });
+
+    it('should be enabled when it is not Installing', () => {
+      store.dispatch({ type: 'plugins/install/fulfilled', payload: { id: '', changes: {} } });
+      render(
+        <TestProvider store={store}>
+          <InstallControlsButton plugin={{ ...plugin }} pluginStatus={PluginStatus.UPDATE} />
+        </TestProvider>
+      );
+      const button = screen.getByText('Update').closest('button');
+      expect(button).toBeEnabled();
+    });
+  });
+
+  describe('update button on managed instance', () => {
+    const oldFeatureTogglesManagedPluginsInstall = config.featureToggles.managedPluginsInstall;
+    const oldPluginAdminExternalManageEnabled = config.pluginAdminExternalManageEnabled;
+
+    beforeAll(() => {
+      config.featureToggles.managedPluginsInstall = true;
+      config.pluginAdminExternalManageEnabled = true;
+    });
+
+    afterAll(() => {
+      config.featureToggles.managedPluginsInstall = oldFeatureTogglesManagedPluginsInstall;
+      config.pluginAdminExternalManageEnabled = oldPluginAdminExternalManageEnabled;
+    });
+
+    const store = configureStore({
+      plugins: getPluginsStateMock([]),
+    });
+
+    it('should be disabled when isInstalling=false but isUpdatingFromInstance=true', () => {
+      store.dispatch({ type: 'plugins/install/fulfilled', payload: { id: '', changes: {} } });
+      render(
+        <TestProvider store={store}>
+          <InstallControlsButton
+            plugin={{ ...plugin, isUpdatingFromInstance: true }}
+            pluginStatus={PluginStatus.UPDATE}
+          />
+        </TestProvider>
+      );
+      const button = screen.getByText('Update').closest('button');
+      expect(button).toBeDisabled();
+    });
+
+    it('should be enabled when isInstalling=false and isUpdatingFromInstance=false', () => {
+      store.dispatch({ type: 'plugins/install/fulfilled', payload: { id: '', changes: {} } });
+      render(
+        <TestProvider store={store}>
+          <InstallControlsButton
+            plugin={{ ...plugin, isUpdatingFromInstance: false }}
+            pluginStatus={PluginStatus.UPDATE}
+          />
+        </TestProvider>
+      );
+      const button = screen.getByText('Update').closest('button');
+      expect(button).toBeEnabled();
+    });
+  });
 });
diff --git a/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.tsx b/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.tsx
index 74689dabd84..68411e2fbdd 100644
--- a/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.tsx
+++ b/public/app/features/plugins/admin/components/InstallControls/InstallControlsButton.tsx
@@ -140,9 +140,14 @@ export function InstallControlsButton({
   }
 
   if (pluginStatus === PluginStatus.UPDATE) {
+    const disableUpdate =
+      config.pluginAdminExternalManageEnabled && configCore.featureToggles.managedPluginsInstall
+        ? plugin.isUpdatingFromInstance
+        : isInstalling;
+
     return (
       <HorizontalGroup align="flex-start" width="auto" height="auto">
-        <Button disabled={isInstalling} onClick={onUpdate}>
+        <Button disabled={disableUpdate} onClick={onUpdate}>
           {isInstalling ? 'Updating' : 'Update'}
         </Button>
         <Button variant="destructive" disabled={isUninstalling} onClick={onUninstall}>
diff --git a/public/app/features/plugins/admin/helpers.ts b/public/app/features/plugins/admin/helpers.ts
index 621d342b626..25f32871f23 100644
--- a/public/app/features/plugins/admin/helpers.ts
+++ b/public/app/features/plugins/admin/helpers.ts
@@ -23,10 +23,10 @@ export function mergeLocalsAndRemotes({
   const catalogPlugins: CatalogPlugin[] = [];
   const errorByPluginId = groupErrorsByPluginId(errors);
 
-  const instancesSet = instance.reduce((set, instancePlugin) => {
-    set.add(instancePlugin.pluginSlug);
-    return set;
-  }, new Set<string>());
+  const instancesMap = instance.reduce((map, instancePlugin) => {
+    map.set(instancePlugin.pluginSlug, instancePlugin);
+    return map;
+  }, new Map<string, InstancePlugin>());
 
   // add locals
   local.forEach((localPlugin) => {
@@ -51,8 +51,15 @@ export function mergeLocalsAndRemotes({
       if (configCore.featureToggles.managedPluginsInstall && config.pluginAdminExternalManageEnabled) {
         catalogPlugin.isFullyInstalled = catalogPlugin.isCore
           ? true
-          : instancesSet.has(remotePlugin.slug) && catalogPlugin.isInstalled;
-        catalogPlugin.isInstalled = instancesSet.has(remotePlugin.slug) || catalogPlugin.isInstalled;
+          : instancesMap.has(remotePlugin.slug) && catalogPlugin.isInstalled;
+
+        catalogPlugin.isInstalled = instancesMap.has(remotePlugin.slug) || catalogPlugin.isInstalled;
+
+        const instancePlugin = instancesMap.get(remotePlugin.slug);
+        catalogPlugin.isUpdatingFromInstance =
+          instancesMap.has(remotePlugin.slug) &&
+          catalogPlugin.hasUpdate &&
+          catalogPlugin.installedVersion !== instancePlugin?.version;
       }
 
       catalogPlugins.push(catalogPlugin);
diff --git a/public/app/features/plugins/admin/types.ts b/public/app/features/plugins/admin/types.ts
index d74c0808104..833cb1bc07f 100644
--- a/public/app/features/plugins/admin/types.ts
+++ b/public/app/features/plugins/admin/types.ts
@@ -62,6 +62,7 @@ export interface CatalogPlugin extends WithAccessControlMetadata {
   // instance plugins may not be fully installed, which means a new instance
   // running the plugin didn't started yet
   isFullyInstalled?: boolean;
+  isUpdatingFromInstance?: boolean;
   iam?: IdentityAccessManagement;
 }
 
@@ -318,4 +319,5 @@ export type PluginVersion = {
 
 export type InstancePlugin = {
   pluginSlug: string;
+  version: string;
 };