diff --git a/public/app/features/dashboard-scene/edit-pane/VizPanelEditableElement.tsx b/public/app/features/dashboard-scene/edit-pane/VizPanelEditableElement.tsx
index 0f88658da85..f608297ed96 100644
--- a/public/app/features/dashboard-scene/edit-pane/VizPanelEditableElement.tsx
+++ b/public/app/features/dashboard-scene/edit-pane/VizPanelEditableElement.tsx
@@ -120,7 +120,7 @@ const OpenPanelEditViz = ({ panel }: OpenPanelEditVizProps) => {
         size="sm"
         tooltip={t('dashboard.viz-panel.options.configure-button-tooltip', 'Edit queries and visualization options')}
       >
-        <Trans i18nKey="dashboard.new-panel.configure-button">Configure panel</Trans>
+        <Trans i18nKey="dashboard.new-panel.configure-button">Configure</Trans>
       </Button>
     </Stack>
   );
diff --git a/public/app/features/dashboard-scene/scene/AddLibraryPanelDrawer.tsx b/public/app/features/dashboard-scene/scene/AddLibraryPanelDrawer.tsx
index 1d4c4b198a5..e92b570b7be 100644
--- a/public/app/features/dashboard-scene/scene/AddLibraryPanelDrawer.tsx
+++ b/public/app/features/dashboard-scene/scene/AddLibraryPanelDrawer.tsx
@@ -10,7 +10,7 @@ import {
 import { getDashboardSceneFor, getDefaultVizPanel } from '../utils/utils';
 
 import { LibraryPanelBehavior } from './LibraryPanelBehavior';
-import { DashboardGridItem } from './layout-default/DashboardGridItem';
+import { isDashboardLayoutItem } from './types/DashboardLayoutItem';
 
 export interface AddLibraryPanelDrawerState extends SceneObjectState {
   panelToReplaceRef?: SceneObjectRef<VizPanel>;
@@ -35,13 +35,11 @@ export class AddLibraryPanelDrawer extends SceneObjectBase<AddLibraryPanelDrawer
     const panelToReplace = this.state.panelToReplaceRef?.resolve();
 
     if (panelToReplace) {
-      const gridItemToReplace = panelToReplace.parent;
+      const layoutItem = panelToReplace.parent;
 
-      if (!(gridItemToReplace instanceof DashboardGridItem)) {
-        throw new Error('Trying to replace a panel that does not have a DashboardGridItem');
+      if (layoutItem && isDashboardLayoutItem(layoutItem)) {
+        layoutItem.setElementBody(newPanel);
       }
-
-      gridItemToReplace.setState({ body: newPanel });
     } else {
       dashboard.addPanel(newPanel);
     }
diff --git a/public/app/features/dashboard-scene/scene/UnconfiguredPanel.tsx b/public/app/features/dashboard-scene/scene/UnconfiguredPanel.tsx
index 5f833c84d09..bc101f6e99d 100644
--- a/public/app/features/dashboard-scene/scene/UnconfiguredPanel.tsx
+++ b/public/app/features/dashboard-scene/scene/UnconfiguredPanel.tsx
@@ -1,23 +1,70 @@
+import { useCallback, useState } from 'react';
+
 import { PanelPlugin, PanelProps } from '@grafana/data';
 import { locationService } from '@grafana/runtime';
 import { sceneUtils } from '@grafana/scenes';
-import { Box, Button, Stack } from '@grafana/ui';
-import { Trans } from 'app/core/internationalization';
+import { Box, Button, ButtonGroup, Dropdown, Menu, Stack } from '@grafana/ui';
+import { Trans, t } from 'app/core/internationalization';
+
+import { findVizPanelByKey, getVizPanelKeyForPanelId } from '../utils/utils';
+
+import { DashboardScene } from './DashboardScene';
 
 export const UNCONFIGURED_PANEL_PLUGIN_ID = '__unconfigured-panel';
 const UnconfiguredPanel = new PanelPlugin(UnconfiguredPanelComp);
 
 function UnconfiguredPanelComp(props: PanelProps) {
+  const [isOpen, setIsOpen] = useState(false);
+
+  const onMenuClick = useCallback((isOpen: boolean) => {
+    setIsOpen(isOpen);
+  }, []);
+
   const onConfigure = () => {
     locationService.partial({ editPanel: props.id });
   };
 
+  const onUseLibraryPanel = () => {
+    const dashboard = window.__grafanaSceneContext;
+
+    if (!(dashboard instanceof DashboardScene)) {
+      throw new Error('DashboardScene not found');
+    }
+
+    const panel = findVizPanelByKey(dashboard, getVizPanelKeyForPanelId(props.id));
+    if (!panel) {
+      throw new Error('Panel not found');
+    }
+
+    dashboard.onShowAddLibraryPanelDrawer(panel.getRef());
+  };
+
+  const MenuActions = () => (
+    <Menu>
+      <Menu.Item
+        icon="pen"
+        label={t('dashboard.new-panel.menu-open-panel-editor', 'Configure')}
+        onClick={onConfigure}
+      ></Menu.Item>
+      <Menu.Item
+        icon="library-panel"
+        label={t('dashboard.new-panel.menu-use-library-panel', 'Use library panel')}
+        onClick={onUseLibraryPanel}
+      ></Menu.Item>
+    </Menu>
+  );
+
   return (
     <Stack direction={'row'} alignItems={'center'} height={'100%'} justifyContent={'center'}>
       <Box paddingBottom={2}>
-        <Button icon="sliders-v-alt" onClick={onConfigure}>
-          <Trans i18nKey="dashboard.new-panel.configure-button">Configure panel</Trans>
-        </Button>
+        <ButtonGroup>
+          <Button icon="sliders-v-alt" onClick={onConfigure}>
+            <Trans i18nKey="dashboard.new-panel.configure-button">Configure</Trans>
+          </Button>
+          <Dropdown overlay={MenuActions} placement="bottom-end" onVisibleChange={onMenuClick}>
+            <Button aria-label="dashboard.new-panel.configure-button-menu" icon={isOpen ? 'angle-up' : 'angle-down'} />
+          </Dropdown>
+        </ButtonGroup>
       </Box>
     </Stack>
   );
diff --git a/public/app/features/dashboard-scene/scene/layout-default/DashboardGridItem.tsx b/public/app/features/dashboard-scene/scene/layout-default/DashboardGridItem.tsx
index 6b6639efd8b..79173b5f7c2 100644
--- a/public/app/features/dashboard-scene/scene/layout-default/DashboardGridItem.tsx
+++ b/public/app/features/dashboard-scene/scene/layout-default/DashboardGridItem.tsx
@@ -86,6 +86,10 @@ export class DashboardGridItem
     return getDashboardGridItemOptions(this);
   }
 
+  public setElementBody(body: VizPanel): void {
+    this.setState({ body });
+  }
+
   public editingStarted() {
     if (!this.state.variableName) {
       return;
diff --git a/public/app/features/dashboard-scene/scene/layout-responsive-grid/ResponsiveGridItem.tsx b/public/app/features/dashboard-scene/scene/layout-responsive-grid/ResponsiveGridItem.tsx
index e314190b244..1479d4b3ca7 100644
--- a/public/app/features/dashboard-scene/scene/layout-responsive-grid/ResponsiveGridItem.tsx
+++ b/public/app/features/dashboard-scene/scene/layout-responsive-grid/ResponsiveGridItem.tsx
@@ -71,6 +71,10 @@ export class AutoGridItem extends SceneObjectBase<AutoGridItemState> implements
     return getOptions(this);
   }
 
+  public setElementBody(body: VizPanel): void {
+    this.setState({ body });
+  }
+
   public performRepeat() {
     if (!this.state.variableName || sceneGraph.hasVariableDependencyInLoadingState(this)) {
       return;
diff --git a/public/app/features/dashboard-scene/scene/types/DashboardLayoutItem.ts b/public/app/features/dashboard-scene/scene/types/DashboardLayoutItem.ts
index 21a4fc6e7eb..44391c27c33 100644
--- a/public/app/features/dashboard-scene/scene/types/DashboardLayoutItem.ts
+++ b/public/app/features/dashboard-scene/scene/types/DashboardLayoutItem.ts
@@ -1,4 +1,4 @@
-import { SceneObject } from '@grafana/scenes';
+import { SceneObject, VizPanel } from '@grafana/scenes';
 import { OptionsPaneCategoryDescriptor } from 'app/features/dashboard/components/PanelEditor/OptionsPaneCategoryDescriptor';
 /**
  * Abstraction to handle editing of different layout elements (wrappers for VizPanels and other objects)
@@ -24,6 +24,11 @@ export interface DashboardLayoutItem extends SceneObject {
    * When coming out of panel edit
    */
   editingCompleted?(withChanges: boolean): void;
+
+  /**
+   * Change inner body / viz panel
+   */
+  setElementBody(body: VizPanel): void;
 }
 
 export function isDashboardLayoutItem(obj: SceneObject): obj is DashboardLayoutItem {
diff --git a/public/locales/en-US/grafana.json b/public/locales/en-US/grafana.json
index 04f8f28cf5e..eb74f4a20b1 100644
--- a/public/locales/en-US/grafana.json
+++ b/public/locales/en-US/grafana.json
@@ -1631,7 +1631,9 @@
       }
     },
     "new-panel": {
-      "configure-button": "Configure panel"
+      "configure-button": "Configure",
+      "menu-open-panel-editor": "Configure",
+      "menu-use-library-panel": "Use library panel"
     },
     "new-panel-title": "New panel",
     "options": {