diff --git a/e2e-playwright/dashboard-new-layouts/dashboards-edit-custom-variables.spec.ts b/e2e-playwright/dashboard-new-layouts/dashboards-edit-custom-variables.spec.ts
new file mode 100644
index 00000000000..ce5465c1e33
--- /dev/null
+++ b/e2e-playwright/dashboard-new-layouts/dashboards-edit-custom-variables.spec.ts
@@ -0,0 +1,212 @@
+import { Locator } from '@playwright/test';
+
+import { test, expect, DashboardPage, E2ESelectorGroups } from '@grafana/plugin-e2e';
+
+import { flows } from './utils';
+
+test.use({
+  featureToggles: {
+    kubernetesDashboards: true,
+    dashboardNewLayouts: true,
+    dashboardUndoRedo: true,
+    groupByVariable: true,
+  },
+});
+
+test.use({
+  viewport: { width: 1920, height: 1080 },
+});
+
+const PAGE_UNDER_TEST = 'kVi2Gex7z/test-variable-output';
+const DASHBOARD_NAME = 'Test variable output';
+
+test.describe(
+  'Dashboard edit - Custom variable',
+  {
+    tag: ['@dashboards'],
+  },
+  () => {
+    let addButton: Locator | undefined;
+    let rows: Locator | undefined;
+    let valueInputs: Locator | undefined;
+    let labelInputs: Locator | undefined;
+    let deleteButtons: Locator | undefined;
+
+    const getAddButton = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups) => {
+      addButton = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.addButton
+      );
+      await expect(addButton).toBeVisible();
+    };
+
+    const refetchItems = (dashboardPage: DashboardPage, selectors: E2ESelectorGroups) => {
+      rows = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.row
+      );
+
+      valueInputs = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput
+      );
+
+      labelInputs = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput
+      );
+
+      deleteButtons = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.deleteButton
+      );
+    };
+
+    const checkRows = async (length: number) => {
+      expect(await rows!.all()).toHaveLength(length);
+    };
+
+    const fillValue = async (text: string, index: number) => {
+      await valueInputs!.nth(index).fill(text);
+    };
+
+    const fillLabel = async (text: string, index: number) => {
+      await labelInputs!.nth(index).fill(text);
+    };
+
+    const fillLabelValue = async (value: string, label: string, index: number) => {
+      await fillValue(value, index);
+      await fillLabel(label, index);
+    };
+
+    const openModal = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups) => {
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.optionsOpenButton)
+        .click();
+
+      await getAddButton(dashboardPage, selectors);
+
+      refetchItems(dashboardPage, selectors);
+    };
+
+    const closeModal = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups) => {
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.closeButton)
+        .click();
+    };
+
+    const checkItems = async (items: Array<[string, string?]>) => {
+      for (let i = 0; i < items.length; i++) {
+        const [value, label] = items[i];
+        await expect(valueInputs!.nth(i)).toHaveValue(value);
+        await expect(labelInputs!.nth(i)).toHaveValue(label ?? '');
+      }
+    };
+
+    const checkPreview = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups, labels: string[]) => {
+      const previewOptions = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.Settings.Variables.Edit.General.previewOfValuesOption
+      );
+
+      for (let i = 0; i < labels.length; i++) {
+        expect(await previewOptions.nth(i).textContent()).toBe(labels[i]);
+      }
+    };
+
+    const addItem = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups, value = '', label = '') => {
+      await addButton!.click();
+      refetchItems(dashboardPage, selectors);
+      await fillLabelValue(value ?? '', label ?? '', (await rows!.all()).length - 1);
+    };
+
+    const removeItem = async (dashboardPage: DashboardPage, selectors: E2ESelectorGroups, index: number) => {
+      await deleteButtons!.nth(index).click();
+      refetchItems(dashboardPage, selectors);
+    };
+
+    test.beforeEach(() => {
+      valueInputs = undefined;
+      labelInputs = undefined;
+      deleteButtons = undefined;
+    });
+
+    test('can add a new custom variable', async ({ gotoDashboardPage, selectors, page }) => {
+      const dashboardPage = await gotoDashboardPage({ uid: PAGE_UNDER_TEST });
+      await expect(page.getByText(DASHBOARD_NAME)).toBeVisible();
+
+      // common steps to add a new variable
+      await flows.newEditPaneVariableClick(dashboardPage, selectors);
+      await flows.newEditPanelCommonVariableInputs(dashboardPage, selectors, {
+        type: 'custom',
+        name: 'foo',
+        label: 'Foo',
+        value: '',
+      });
+
+      await openModal(dashboardPage, selectors);
+      await checkRows(1);
+      await addItem(dashboardPage, selectors);
+      await checkRows(2);
+      await fillValue('first value', 0);
+      await fillLabelValue('second value', 'second label', 1);
+      await addItem(dashboardPage, selectors, 'third value', 'third label');
+      await addItem(dashboardPage, selectors, 'fourth value', 'fourth value');
+      await removeItem(dashboardPage, selectors, 2);
+      await checkRows(3);
+      await checkPreview(dashboardPage, selectors, ['first value', 'second label', 'fourth value']);
+      await closeModal(dashboardPage, selectors);
+
+      // assert variable is visible and has the correct values
+      const variableLabel = dashboardPage.getByGrafanaSelector(
+        selectors.pages.Dashboard.SubMenu.submenuItemLabels('Foo')
+      );
+      await expect(variableLabel).toBeVisible();
+      await expect(variableLabel).toContainText('Foo');
+      await expect(
+        dashboardPage.getByGrafanaSelector(
+          selectors.pages.Dashboard.SubMenu.submenuItemValueDropDownValueLinkTexts('first value')
+        )
+      ).toBeVisible();
+
+      // check that variable deletion works
+      await dashboardPage.getByGrafanaSelector(selectors.components.EditPaneHeader.deleteButton).click();
+      await expect(variableLabel).toBeHidden();
+    });
+
+    test('can edit a custom variable', async ({ gotoDashboardPage, selectors, page }) => {
+      const dashboardPage = await gotoDashboardPage({
+        uid: PAGE_UNDER_TEST,
+        queryParams: new URLSearchParams({ orgId: '1', editview: 'variables' }),
+      });
+      await expect(page.getByText(DASHBOARD_NAME)).toBeVisible();
+
+      // Create a custom variable in the dashboard settings page
+      await dashboardPage.getByGrafanaSelector(selectors.components.CallToActionCard.buttonV2('Add variable')).click();
+      const typeSelect = dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.General.generalTypeSelectV2)
+        .locator('input');
+      await typeSelect.fill('Custom');
+      await typeSelect.press('Enter');
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.General.generalNameInputV2)
+        .fill('foo');
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.General.generalLabelInputV2)
+        .fill('Foo');
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.customValueInput)
+        .fill('first value, second label : second value, fourth value : fourth value');
+      await dashboardPage
+        .getByGrafanaSelector(selectors.pages.Dashboard.Settings.Variables.Edit.General.applyButton)
+        .click();
+      await dashboardPage
+        .getByGrafanaSelector(selectors.components.NavToolbar.editDashboard.backToDashboardButton)
+        .click();
+
+      // Open the modal editor in the side pane
+      await dashboardPage.getByGrafanaSelector(selectors.components.PanelEditor.Outline.section).click();
+      await dashboardPage.getByGrafanaSelector(selectors.components.PanelEditor.Outline.node('Variables')).click();
+      await dashboardPage.getByGrafanaSelector(selectors.components.PanelEditor.Outline.item('foo')).click();
+      await openModal(dashboardPage, selectors);
+
+      // Check the items
+      await checkItems([['first value'], ['second value', 'second label'], ['fourth value']]);
+      await checkPreview(dashboardPage, selectors, ['first value', 'second label', 'fourth value']);
+    });
+  }
+);
diff --git a/e2e-playwright/dashboard-new-layouts/dashboards-edit-variables.spec.ts b/e2e-playwright/dashboard-new-layouts/dashboards-edit-variables.spec.ts
index 54991dfd623..4b5ea9574f8 100644
--- a/e2e-playwright/dashboard-new-layouts/dashboards-edit-variables.spec.ts
+++ b/e2e-playwright/dashboard-new-layouts/dashboards-edit-variables.spec.ts
@@ -20,46 +20,6 @@ test.describe(
     tag: ['@dashboards'],
   },
   () => {
-    test('can add a new custom variable', async ({ gotoDashboardPage, selectors, page }) => {
-      const dashboardPage = await gotoDashboardPage({ uid: PAGE_UNDER_TEST });
-      await expect(page.getByText(DASHBOARD_NAME)).toBeVisible();
-
-      const variable: Variable = {
-        type: 'custom',
-        name: 'foo',
-        label: 'Foo',
-        value: 'one,two,three',
-      };
-
-      // common steps to add a new variable
-      await flows.newEditPaneVariableClick(dashboardPage, selectors);
-      await flows.newEditPanelCommonVariableInputs(dashboardPage, selectors, variable);
-
-      // set the custom variable value
-      const customValueInput = dashboardPage.getByGrafanaSelector(
-        selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.customValueInput
-      );
-      await customValueInput.fill(variable.value);
-      await customValueInput.blur();
-
-      // assert the dropdown for the variable is visible and has the correct values
-      const variableLabel = dashboardPage.getByGrafanaSelector(
-        selectors.pages.Dashboard.SubMenu.submenuItemLabels(variable.label!)
-      );
-      await expect(variableLabel).toBeVisible();
-      await expect(variableLabel).toContainText(variable.label!);
-
-      const values = variable.value.split(',');
-      const firstValueLink = dashboardPage.getByGrafanaSelector(
-        selectors.pages.Dashboard.SubMenu.submenuItemValueDropDownValueLinkTexts(values[0])
-      );
-      await expect(firstValueLink).toBeVisible();
-
-      // check that variable deletion works
-      await dashboardPage.getByGrafanaSelector(selectors.components.EditPaneHeader.deleteButton).click();
-      await expect(variableLabel).toBeHidden();
-    });
-
     test('can add a new constant variable', async ({ gotoDashboardPage, selectors, page }) => {
       const dashboardPage = await gotoDashboardPage({ uid: PAGE_UNDER_TEST });
       await expect(page.getByText(DASHBOARD_NAME)).toBeVisible();
diff --git a/eslint-suppressions.json b/eslint-suppressions.json
index 1d3a1535b9b..cb9a72a644b 100644
--- a/eslint-suppressions.json
+++ b/eslint-suppressions.json
@@ -2189,19 +2189,6 @@
       "count": 1
     }
   },
-  "public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.tsx": {
-    "no-restricted-syntax": {
-      "count": 1
-    }
-  },
-  "public/app/features/dashboard-scene/settings/variables/utils.ts": {
-    "@typescript-eslint/consistent-type-assertions": {
-      "count": 1
-    },
-    "@typescript-eslint/no-explicit-any": {
-      "count": 1
-    }
-  },
   "public/app/features/dashboard-scene/sharing/ShareButton/share-externally/EmailShare/ConfigEmailSharing/ConfigEmailSharing.tsx": {
     "no-restricted-syntax": {
       "count": 1
diff --git a/package.json b/package.json
index d8fe5451d99..bce42eab31e 100644
--- a/package.json
+++ b/package.json
@@ -296,8 +296,8 @@
     "@grafana/plugin-ui": "^0.10.10",
     "@grafana/prometheus": "workspace:*",
     "@grafana/runtime": "workspace:*",
-    "@grafana/scenes": "6.39.3",
-    "@grafana/scenes-react": "6.39.3",
+    "@grafana/scenes": "6.39.4",
+    "@grafana/scenes-react": "6.39.4",
     "@grafana/schema": "workspace:*",
     "@grafana/sql": "workspace:*",
     "@grafana/ui": "workspace:*",
diff --git a/packages/grafana-e2e-selectors/src/selectors/pages.ts b/packages/grafana-e2e-selectors/src/selectors/pages.ts
index b45357f05f7..7716ccc1436 100644
--- a/packages/grafana-e2e-selectors/src/selectors/pages.ts
+++ b/packages/grafana-e2e-selectors/src/selectors/pages.ts
@@ -500,24 +500,9 @@ export const versionedPages = {
             queryOptionsQueryInput: {
               '10.4.0': 'data-testid Variable editor Form Default Variable Query Editor textarea',
             },
-            queryOptionsStaticOptionsRow: {
-              [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options row',
-            },
             queryOptionsStaticOptionsToggle: {
               [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options toggle',
             },
-            queryOptionsStaticOptionsLabelInput: {
-              [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options Label input',
-            },
-            queryOptionsStaticOptionsValueInput: {
-              [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options Value input',
-            },
-            queryOptionsStaticOptionsDeleteButton: {
-              [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options Delete button',
-            },
-            queryOptionsStaticOptionsAddButton: {
-              [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options Add button',
-            },
             queryOptionsStaticOptionsOrderDropdown: {
               [MIN_GRAFANA_VERSION]: 'Variable editor Form Query Static Options Order dropdown',
             },
@@ -559,6 +544,12 @@ export const versionedPages = {
             customValueInput: {
               [MIN_GRAFANA_VERSION]: 'data-testid custom-variable-input',
             },
+            optionsOpenButton: {
+              [MIN_GRAFANA_VERSION]: 'data-testid custom-variable-options-open-button',
+            },
+            closeButton: {
+              [MIN_GRAFANA_VERSION]: 'data-testid custom-variable-close-button',
+            },
           },
           IntervalVariable: {
             intervalsValueInput: {
@@ -607,6 +598,26 @@ export const versionedPages = {
               ['12.3.0']: 'data-testid switch variable disabled value input',
             },
           },
+          StaticOptionsEditor: {
+            addButton: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Add button',
+            },
+            labelInput: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Label input',
+            },
+            valueInput: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Value input',
+            },
+            moveButton: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Move button',
+            },
+            deleteButton: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Delete button',
+            },
+            row: {
+              [MIN_GRAFANA_VERSION]: 'data-testid Variable editor Form Static Options Row',
+            },
+          },
         },
       },
     },
diff --git a/public/app/features/dashboard-scene/settings/variables/components/CustomVariableForm.tsx b/public/app/features/dashboard-scene/settings/variables/components/CustomVariableForm.tsx
index f11037fb80c..b3c78330156 100644
--- a/public/app/features/dashboard-scene/settings/variables/components/CustomVariableForm.tsx
+++ b/public/app/features/dashboard-scene/settings/variables/components/CustomVariableForm.tsx
@@ -1,16 +1,11 @@
 import { FormEvent } from 'react';
-import { lastValueFrom } from 'rxjs';
 
 import { selectors } from '@grafana/e2e-selectors';
 import { Trans, t } from '@grafana/i18n';
-import { CustomVariable, SceneVariable } from '@grafana/scenes';
-import { TextArea } from '@grafana/ui';
-import { OptionsPaneItemDescriptor } from 'app/features/dashboard/components/PanelEditor/OptionsPaneItemDescriptor';
-
-import { VariableLegend } from '../components/VariableLegend';
-import { VariableTextAreaField } from '../components/VariableTextAreaField';
 
 import { SelectionOptionsForm } from './SelectionOptionsForm';
+import { VariableLegend } from './VariableLegend';
+import { VariableTextAreaField } from './VariableTextAreaField';
 
 interface CustomVariableFormProps {
   query: string;
@@ -71,41 +66,3 @@ export function CustomVariableForm({
     </>
   );
 }
-
-export function getCustomVariableOptions(variable: SceneVariable): OptionsPaneItemDescriptor[] {
-  if (!(variable instanceof CustomVariable)) {
-    return [];
-  }
-
-  return [
-    new OptionsPaneItemDescriptor({
-      title: t('dashboard.edit-pane.variable.custom-options.values', 'Values separated by comma'),
-      id: 'custom-variable-values',
-      render: (descriptor) => <ValuesTextField id={descriptor.props.id} variable={variable} />,
-    }),
-  ];
-}
-
-function ValuesTextField({ variable, id }: { variable: CustomVariable; id?: string }) {
-  const { query } = variable.useState();
-
-  const onBlur = async (event: FormEvent<HTMLTextAreaElement>) => {
-    variable.setState({ query: event.currentTarget.value });
-    await lastValueFrom(variable.validateAndUpdate!());
-  };
-
-  return (
-    <TextArea
-      id={id}
-      rows={2}
-      defaultValue={query}
-      onBlur={onBlur}
-      placeholder={t(
-        'dashboard.edit-pane.variable.custom-options.values-placeholder',
-        '1, 10, mykey : myvalue, myvalue, escaped\,value'
-      )}
-      required
-      data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.customValueInput}
-    />
-  );
-}
diff --git a/public/app/features/dashboard-scene/settings/variables/components/QueryVariableForm.test.tsx b/public/app/features/dashboard-scene/settings/variables/components/QueryVariableForm.test.tsx
index c643a98b212..63a1912fde7 100644
--- a/public/app/features/dashboard-scene/settings/variables/components/QueryVariableForm.test.tsx
+++ b/public/app/features/dashboard-scene/settings/variables/components/QueryVariableForm.test.tsx
@@ -337,17 +337,15 @@ describe('QueryVariableEditorForm', () => {
     );
     await userEvent.click(staticOptionsToggle);
 
-    const addButton = getByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsAddButton
-    );
+    const addButton = getByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.addButton);
     await userEvent.click(addButton);
 
     // Now enter label and value for the new option
     const labelInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsLabelInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput
     );
     const valueInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsValueInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput
     );
 
     // Enter label for the new option (second input)
@@ -372,7 +370,7 @@ describe('QueryVariableEditorForm', () => {
     });
 
     const deleteButtons = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsDeleteButton
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.deleteButton
     );
 
     // Remove the first option
@@ -392,7 +390,7 @@ describe('QueryVariableEditorForm', () => {
     });
 
     const labelInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsLabelInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput
     );
 
     await userEvent.clear(labelInputs[0]);
@@ -411,7 +409,7 @@ describe('QueryVariableEditorForm', () => {
     });
 
     const valueInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsValueInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput
     );
 
     await userEvent.clear(valueInputs[0]);
@@ -443,9 +441,7 @@ describe('QueryVariableEditorForm', () => {
     ).toBeInTheDocument();
 
     // Option rows should be visible
-    expect(
-      getAllByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsRow)
-    ).toHaveLength(2);
+    expect(getAllByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.row)).toHaveLength(2);
 
     // Uncheck the static options switch
     const staticOptionsToggle = getByTestId(
@@ -464,7 +460,7 @@ describe('QueryVariableEditorForm', () => {
       )
     ).not.toBeInTheDocument();
     expect(
-      queryByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsRow)
+      queryByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.row)
     ).not.toBeInTheDocument();
   });
 });
diff --git a/public/app/features/dashboard-scene/settings/variables/components/VariableOptionsInput.tsx b/public/app/features/dashboard-scene/settings/variables/components/VariableOptionsInput.tsx
deleted file mode 100644
index 103aa10c54f..00000000000
--- a/public/app/features/dashboard-scene/settings/variables/components/VariableOptionsInput.tsx
+++ /dev/null
@@ -1,106 +0,0 @@
-import { useState } from 'react';
-
-import { selectors } from '@grafana/e2e-selectors';
-import { t, Trans } from '@grafana/i18n';
-import { VariableValueOption } from '@grafana/scenes';
-import { Button, Input, Stack } from '@grafana/ui';
-
-interface VariableOptionsFieldProps {
-  options: VariableValueOption[];
-  onChange: (options: VariableValueOption[]) => void;
-  width?: number;
-}
-
-export function VariableOptionsInput({ options, onChange, width }: VariableOptionsFieldProps) {
-  const [optionsLocal, setOptionsLocal] = useState(options.length ? options : [{ value: '', label: '' }]);
-
-  const updateOptions = (newOptions: VariableValueOption[]) => {
-    setOptionsLocal(newOptions);
-    onChange(
-      newOptions
-        .map((option) => ({
-          label: option.label.trim(),
-          value: String(option.value).trim(),
-        }))
-        .filter((option) => !!option.label)
-    );
-  };
-
-  const handleValueChange = (index: number, value: string) => {
-    if (optionsLocal[index].value !== value) {
-      const newOptions = [...optionsLocal];
-      newOptions[index] = { ...newOptions[index], value };
-      updateOptions(newOptions);
-    }
-  };
-
-  const handleLabelChange = (index: number, label: string) => {
-    if (optionsLocal[index].label !== label) {
-      const newOptions = [...optionsLocal];
-      newOptions[index] = { ...newOptions[index], label };
-      updateOptions(newOptions);
-    }
-  };
-
-  const addOption = () => {
-    const newOption: VariableValueOption = { value: '', label: '' };
-    const newOptions = [...optionsLocal, newOption];
-    updateOptions(newOptions);
-  };
-
-  const removeOption = (index: number) => {
-    const newOptions = optionsLocal.filter((_, i) => i !== index);
-    updateOptions(newOptions);
-  };
-
-  return (
-    <Stack direction="column" gap={2} width={width}>
-      {optionsLocal.map((option, index) => (
-        <Stack
-          direction="row"
-          key={index}
-          data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsRow}
-        >
-          <Input
-            value={option.label}
-            placeholder={t('variables.query-variable-static-options.label-placeholder', 'display label')}
-            onChange={(e) => handleLabelChange(index, e.currentTarget.value)}
-            data-testid={
-              selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsLabelInput
-            }
-          />
-          <Input
-            value={String(option.value)}
-            placeholder={t('variables.query-variable-static-options.value-placeholder', 'value, default empty string')}
-            onChange={(e) => handleValueChange(index, e.currentTarget.value)}
-            data-testid={
-              selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsValueInput
-            }
-          />
-          <Button
-            icon="times"
-            variant="secondary"
-            aria-label={t('variables.query-variable-static-options.remove-option-button-label', 'Remove option')}
-            onClick={() => removeOption(index)}
-            data-testid={
-              selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsDeleteButton
-            }
-          />
-        </Stack>
-      ))}
-      <div>
-        <Button
-          icon="plus"
-          variant="secondary"
-          onClick={addOption}
-          data-testid={
-            selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsAddButton
-          }
-          aria-label={t('variables.query-variable-static-options.add-option-button-label', 'Add option')}
-        >
-          <Trans i18nKey="variables.query-variable-static-options.add-option-button-label">Add option</Trans>
-        </Button>
-      </div>
-    </Stack>
-  );
-}
diff --git a/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsForm.tsx b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsForm.tsx
new file mode 100644
index 00000000000..8f0fd067a71
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsForm.tsx
@@ -0,0 +1,139 @@
+import { css } from '@emotion/css';
+import { useEffect, useState, useRef, useCallback, useImperativeHandle, forwardRef } from 'react';
+import { v4 as uuidv4 } from 'uuid';
+
+import { GrafanaTheme2 } from '@grafana/data';
+import { VariableValueOption } from '@grafana/scenes';
+import { useStyles2 } from '@grafana/ui';
+
+import { VariableStaticOptionsFormAddButton } from './VariableStaticOptionsFormAddButton';
+import { VariableStaticOptionsFormItem } from './VariableStaticOptionsFormItemEditor';
+import { VariableStaticOptionsFormItems } from './VariableStaticOptionsFormItems';
+
+interface VariableStaticOptionsFormProps {
+  options: VariableValueOption[];
+  onChange: (options: VariableValueOption[]) => void;
+
+  allowEmptyValue?: boolean;
+  isInModal?: boolean;
+}
+
+export interface VariableStaticOptionsFormRef {
+  addItem: () => void;
+}
+
+export const VariableStaticOptionsForm = forwardRef<VariableStaticOptionsFormRef, VariableStaticOptionsFormProps>(
+  function ({ options, onChange, allowEmptyValue, isInModal = false }: VariableStaticOptionsFormProps, ref) {
+    const styles = useStyles2(getStyles, isInModal);
+
+    // Whenever the form is updated, we want to ignore the next update from the parent component.
+    // This is because the parent component will update the options, and we don't want to update the items again.
+    // This is a hack to prevent the form from updating twice and losing items and IDs.
+    // Alternatively, we could maintain a list of emitted items and compare the new options to it, but this is less performant.
+    const ignoreNextUpdate = useRef<boolean>(false);
+
+    const mapOption = useCallback(
+      (option: VariableValueOption) => ({
+        label: option.label,
+        value: String(option.value),
+        id: uuidv4(),
+      }),
+      []
+    );
+
+    const [items, setItems] = useState<VariableStaticOptionsFormItem[]>(
+      options.length ? options.map(mapOption) : [createEmptyItem()]
+    );
+
+    useEffect(() => {
+      if (!ignoreNextUpdate.current) {
+        setItems(
+          options.length
+            ? options.map((option) => ({
+                label: option.label,
+                value: String(option.value),
+                id: uuidv4(),
+              }))
+            : [createEmptyItem()]
+        );
+      }
+
+      ignoreNextUpdate.current = false;
+    }, [options]);
+
+    const updateItems = useCallback(
+      (items: VariableStaticOptionsFormItem[]) => {
+        setItems(items);
+        ignoreNextUpdate.current = true;
+        onChange(
+          items.reduce<VariableValueOption[]>((acc, item) => {
+            const value = item.value.trim();
+
+            if (!allowEmptyValue && !value) {
+              return acc;
+            }
+
+            const label = item.label.trim();
+
+            if (!label && !value) {
+              return acc;
+            }
+
+            acc.push({
+              label: label ? label : value,
+              value,
+            });
+
+            return acc;
+          }, [])
+        );
+      },
+      [allowEmptyValue, onChange]
+    );
+
+    const handleAdd = useCallback(() => setItems([...items, createEmptyItem()]), [items]);
+
+    useImperativeHandle(ref, () => ({ addItem: handleAdd }), [handleAdd]);
+
+    return (
+      <div className={styles.container}>
+        <VariableStaticOptionsFormItems items={items} onChange={updateItems} />
+        {!isInModal && (
+          <div>
+            <VariableStaticOptionsFormAddButton onAdd={handleAdd} />
+          </div>
+        )}
+      </div>
+    );
+  }
+);
+
+VariableStaticOptionsForm.displayName = 'VariableStaticOptionsForm';
+
+const getStyles = (theme: GrafanaTheme2, isInModal: boolean) => ({
+  container: css({
+    display: 'flex',
+    flexDirection: 'column',
+    gap: theme.spacing(2),
+    width: '100%',
+    maxWidth: theme.spacing(60),
+    ...(isInModal
+      ? {
+          maxWidth: '100%',
+
+          // Simulate sticky modal buttons
+          maxHeight: 'calc(80vh - 170px)',
+          overflow: 'auto',
+          minHeight: theme.spacing(5),
+        }
+      : {}),
+  }),
+});
+
+function createEmptyItem(): VariableStaticOptionsFormItem {
+  return {
+    label: '',
+    value: '',
+    id: uuidv4(),
+  };
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormAddButton.tsx b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormAddButton.tsx
new file mode 100644
index 00000000000..26dc4a21479
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormAddButton.tsx
@@ -0,0 +1,21 @@
+import { selectors } from '@grafana/e2e-selectors';
+import { t, Trans } from '@grafana/i18n';
+import { Button } from '@grafana/ui';
+
+interface VariableStaticOptionsFormAddButtonProps {
+  onAdd: () => void;
+}
+
+export const VariableStaticOptionsFormAddButton = ({ onAdd }: VariableStaticOptionsFormAddButtonProps) => {
+  return (
+    <Button
+      icon="plus"
+      variant="secondary"
+      onClick={onAdd}
+      data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.addButton}
+      aria-label={t('variables.static-options.add-option-button-label', 'Add new option')}
+    >
+      <Trans i18nKey="variables.static-options.add-option-button-label">Add new option</Trans>
+    </Button>
+  );
+};
diff --git a/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItemEditor.tsx b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItemEditor.tsx
new file mode 100644
index 00000000000..f1cf42123e9
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItemEditor.tsx
@@ -0,0 +1,117 @@
+import { css } from '@emotion/css';
+import { Draggable } from '@hello-pangea/dnd';
+import { ChangeEventHandler } from 'react';
+
+import { GrafanaTheme2 } from '@grafana/data';
+import { selectors } from '@grafana/e2e-selectors';
+import { t } from '@grafana/i18n';
+import { Icon, IconButton, Input, Stack, useStyles2 } from '@grafana/ui';
+
+export interface VariableStaticOptionsFormItem {
+  id: string;
+  label: string;
+  value: string;
+}
+
+interface VariableStaticOptionsFormItemEditorProps {
+  item: VariableStaticOptionsFormItem;
+  index: number;
+  onChange: (item: VariableStaticOptionsFormItem) => void;
+  onRemove: (item: VariableStaticOptionsFormItem) => void;
+}
+
+export function VariableStaticOptionsFormItemEditor({
+  item,
+  index,
+  onChange,
+  onRemove,
+}: VariableStaticOptionsFormItemEditorProps) {
+  const styles = useStyles2(getStyles);
+
+  const handleValueChange: ChangeEventHandler<HTMLInputElement> = (evt) => {
+    if (item.value !== evt.currentTarget.value) {
+      onChange({ ...item, value: evt.currentTarget.value });
+    }
+  };
+
+  const handleLabelChange: ChangeEventHandler<HTMLInputElement> = (evt) => {
+    if (item.label !== evt.currentTarget.value) {
+      onChange({ ...item, label: evt.currentTarget.value });
+    }
+  };
+
+  const handleRemove = () => onRemove(item);
+
+  return (
+    <Draggable draggableId={item.id} index={index}>
+      {(draggableProvided) => (
+        <tr
+          ref={draggableProvided.innerRef}
+          data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.row}
+          {...draggableProvided.draggableProps}
+        >
+          <td>
+            <Stack
+              direction="row"
+              alignItems="center"
+              data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.moveButton}
+              {...draggableProvided.dragHandleProps}
+            >
+              <Icon
+                title={t('variables.static-options.drag-and-drop', 'Drag and drop to reorder')}
+                name="draggabledots"
+                size="lg"
+                className={styles.dragIcon}
+              />
+            </Stack>
+          </td>
+          <td>
+            <Input
+              value={item.value}
+              placeholder={t('variables.static-options.value-placeholder', 'Value')}
+              onChange={handleValueChange}
+              data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput}
+            />
+          </td>
+          <td>
+            <Input
+              value={item.label}
+              placeholder={t('variables.static-options.label-placeholder', 'Defaults to value')}
+              onChange={handleLabelChange}
+              data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput}
+            />
+          </td>
+          <td>
+            <Stack direction="row" alignItems="center">
+              <IconButton
+                name="trash-alt"
+                aria-label={t('variables.static-options.remove-option-button-label', 'Remove option')}
+                onClick={handleRemove}
+                data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.deleteButton}
+              />
+            </Stack>
+          </td>
+        </tr>
+      )}
+    </Draggable>
+  );
+}
+
+const getStyles = (theme: GrafanaTheme2) => ({
+  dragIcon: css({
+    cursor: 'grab',
+
+    // create a focus ring around the whole row when the drag handle is tab-focused
+    // needs position: relative on the drag row to work correctly
+    '&:focus-visible&:after': {
+      bottom: 0,
+      content: '""',
+      left: 0,
+      position: 'absolute',
+      right: 0,
+      top: 0,
+      outline: `2px solid ${theme.colors.primary.main}`,
+      outlineOffset: '-2px',
+    },
+  }),
+});
diff --git a/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItems.tsx b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItems.tsx
new file mode 100644
index 00000000000..b5c11927577
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsFormItems.tsx
@@ -0,0 +1,117 @@
+import { css } from '@emotion/css';
+import { DragDropContext, Droppable, DropResult } from '@hello-pangea/dnd';
+
+import { GrafanaTheme2 } from '@grafana/data';
+import { Trans } from '@grafana/i18n';
+import { useStyles2 } from '@grafana/ui';
+
+import {
+  VariableStaticOptionsFormItem,
+  VariableStaticOptionsFormItemEditor,
+} from './VariableStaticOptionsFormItemEditor';
+
+interface VariableStaticOptionsFormProps {
+  items: VariableStaticOptionsFormItem[];
+  onChange: (items: VariableStaticOptionsFormItem[]) => void;
+}
+
+export function VariableStaticOptionsFormItems({ items, onChange }: VariableStaticOptionsFormProps) {
+  const styles = useStyles2(getStyles);
+
+  const handleReorder = (result: DropResult) => {
+    if (!result || !result.destination) {
+      return;
+    }
+
+    const startIdx = result.source.index;
+    const endIdx = result.destination.index;
+
+    if (startIdx === endIdx) {
+      return;
+    }
+
+    const newItems = [...items];
+    const [removedItem] = newItems.splice(startIdx, 1);
+    newItems.splice(endIdx, 0, removedItem);
+    onChange(newItems);
+  };
+
+  const handleChange = (item: VariableStaticOptionsFormItem) => {
+    const idx = items.findIndex((currentItem) => currentItem.id === item.id);
+
+    if (idx === -1) {
+      return;
+    }
+
+    const newOptions = [...items];
+    newOptions[idx] = item;
+    onChange(newOptions);
+  };
+
+  const handleRemove = (item: VariableStaticOptionsFormItem) => {
+    const newOptions = items.filter((currentItem) => currentItem.id !== item.id);
+    onChange(newOptions);
+  };
+
+  return (
+    <table className={styles.table}>
+      <thead>
+        <tr>
+          <th className={styles.headerIconColumn} />
+          <th className={styles.headerInputColumn}>
+            <Trans i18nKey="variables.static-options.value-header">Value</Trans>
+          </th>
+          <th className={styles.headerInputColumn}>
+            <Trans i18nKey="variables.static-options.label-header">Display text</Trans>
+          </th>
+          <th className={styles.headerIconColumn} />
+        </tr>
+      </thead>
+      <DragDropContext onDragEnd={handleReorder}>
+        <Droppable droppableId="static-options-list" direction="vertical">
+          {(droppableProvided) => (
+            <tbody ref={droppableProvided.innerRef} {...droppableProvided.droppableProps}>
+              {items.map((item, idx) => (
+                <VariableStaticOptionsFormItemEditor
+                  item={item}
+                  index={idx}
+                  onChange={handleChange}
+                  onRemove={handleRemove}
+                  key={item.id}
+                />
+              ))}
+              {droppableProvided.placeholder}
+            </tbody>
+          )}
+        </Droppable>
+      </DragDropContext>
+    </table>
+  );
+}
+
+const getStyles = (theme: GrafanaTheme2) => ({
+  table: css({
+    'tbody tr': css({
+      position: 'relative',
+    }),
+
+    'tbody tr:hover': css({
+      background: theme.colors.action.hover,
+    }),
+
+    'th, td': {
+      padding: theme.spacing(1),
+      width: '49%',
+    },
+
+    'th:first-child, td:first-child, th:last-child, td:last-child': css({
+      width: '1%',
+    }),
+  }),
+  headerIconColumn: css({
+    width: '1%',
+  }),
+  headerInputColumn: css({
+    width: '49%',
+  }),
+});
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor.tsx
deleted file mode 100644
index d7db272b5ab..00000000000
--- a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor.tsx
+++ /dev/null
@@ -1,89 +0,0 @@
-import { FormEvent } from 'react';
-import { lastValueFrom } from 'rxjs';
-
-import { selectors } from '@grafana/e2e-selectors';
-import { t } from '@grafana/i18n';
-import { CustomVariable, SceneVariable } from '@grafana/scenes';
-import { TextArea } from '@grafana/ui';
-import { OptionsPaneItemDescriptor } from 'app/features/dashboard/components/PanelEditor/OptionsPaneItemDescriptor';
-
-import { CustomVariableForm } from '../components/CustomVariableForm';
-
-interface CustomVariableEditorProps {
-  variable: CustomVariable;
-  onRunQuery: () => void;
-}
-
-export function CustomVariableEditor({ variable, onRunQuery }: CustomVariableEditorProps) {
-  const { query, isMulti, allValue, includeAll, allowCustomValue } = variable.useState();
-
-  const onMultiChange = (event: FormEvent<HTMLInputElement>) => {
-    variable.setState({ isMulti: event.currentTarget.checked });
-  };
-  const onIncludeAllChange = (event: FormEvent<HTMLInputElement>) => {
-    variable.setState({ includeAll: event.currentTarget.checked });
-  };
-  const onQueryChange = (event: FormEvent<HTMLTextAreaElement>) => {
-    variable.setState({ query: event.currentTarget.value });
-    onRunQuery();
-  };
-  const onAllValueChange = (event: FormEvent<HTMLInputElement>) => {
-    variable.setState({ allValue: event.currentTarget.value });
-  };
-  const onAllowCustomValueChange = (event: FormEvent<HTMLInputElement>) => {
-    variable.setState({ allowCustomValue: event.currentTarget.checked });
-  };
-
-  return (
-    <CustomVariableForm
-      query={query ?? ''}
-      multi={!!isMulti}
-      allValue={allValue ?? ''}
-      includeAll={!!includeAll}
-      allowCustomValue={allowCustomValue}
-      onMultiChange={onMultiChange}
-      onIncludeAllChange={onIncludeAllChange}
-      onQueryChange={onQueryChange}
-      onAllValueChange={onAllValueChange}
-      onAllowCustomValueChange={onAllowCustomValueChange}
-    />
-  );
-}
-
-export function getCustomVariableOptions(variable: SceneVariable): OptionsPaneItemDescriptor[] {
-  if (!(variable instanceof CustomVariable)) {
-    return [];
-  }
-
-  return [
-    new OptionsPaneItemDescriptor({
-      title: t('dashboard.edit-pane.variable.custom-options.values', 'Values separated by comma'),
-      id: 'custom-variable-values',
-      render: ({ props }) => <ValuesTextField id={props.id} variable={variable} />,
-    }),
-  ];
-}
-
-function ValuesTextField({ variable, id }: { variable: CustomVariable; id?: string }) {
-  const { query } = variable.useState();
-
-  const onBlur = async (event: FormEvent<HTMLTextAreaElement>) => {
-    variable.setState({ query: event.currentTarget.value });
-    await lastValueFrom(variable.validateAndUpdate!());
-  };
-
-  return (
-    <TextArea
-      id={id}
-      rows={2}
-      defaultValue={query}
-      onBlur={onBlur}
-      placeholder={t(
-        'dashboard.edit-pane.variable.custom-options.values-placeholder',
-        '1, 10, mykey : myvalue, myvalue, escaped\,value'
-      )}
-      required
-      data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.customValueInput}
-    />
-  );
-}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor.test.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/CustomVariableEditor.test.tsx
similarity index 100%
rename from public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor.test.tsx
rename to public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/CustomVariableEditor.test.tsx
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/CustomVariableEditor.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/CustomVariableEditor.tsx
new file mode 100644
index 00000000000..8dfc7b3eac1
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/CustomVariableEditor.tsx
@@ -0,0 +1,83 @@
+import { FormEvent, useCallback } from 'react';
+
+import { t } from '@grafana/i18n';
+import { CustomVariable, SceneVariable } from '@grafana/scenes';
+
+import { OptionsPaneItemDescriptor } from '../../../../../dashboard/components/PanelEditor/OptionsPaneItemDescriptor';
+import { CustomVariableForm } from '../../components/CustomVariableForm';
+
+import { PaneItem } from './PaneItem';
+
+interface CustomVariableEditorProps {
+  variable: CustomVariable;
+  onRunQuery: () => void;
+}
+
+export function CustomVariableEditor({ variable, onRunQuery }: CustomVariableEditorProps) {
+  const { query, isMulti, allValue, includeAll, allowCustomValue } = variable.useState();
+
+  const onMultiChange = useCallback(
+    (event: FormEvent<HTMLInputElement>) => {
+      variable.setState({ isMulti: event.currentTarget.checked });
+    },
+    [variable]
+  );
+
+  const onIncludeAllChange = useCallback(
+    (event: FormEvent<HTMLInputElement>) => {
+      variable.setState({ includeAll: event.currentTarget.checked });
+    },
+    [variable]
+  );
+
+  const onQueryChange = useCallback(
+    (event: FormEvent<HTMLTextAreaElement>) => {
+      variable.setState({ query: event.currentTarget.value });
+      onRunQuery();
+    },
+    [variable, onRunQuery]
+  );
+
+  const onAllValueChange = useCallback(
+    (event: FormEvent<HTMLInputElement>) => {
+      variable.setState({ allValue: event.currentTarget.value });
+    },
+    [variable]
+  );
+
+  const onAllowCustomValueChange = useCallback(
+    (event: FormEvent<HTMLInputElement>) => {
+      variable.setState({ allowCustomValue: event.currentTarget.checked });
+    },
+    [variable]
+  );
+
+  return (
+    <CustomVariableForm
+      query={query ?? ''}
+      multi={!!isMulti}
+      allValue={allValue ?? ''}
+      includeAll={!!includeAll}
+      allowCustomValue={allowCustomValue}
+      onMultiChange={onMultiChange}
+      onIncludeAllChange={onIncludeAllChange}
+      onQueryChange={onQueryChange}
+      onAllValueChange={onAllValueChange}
+      onAllowCustomValueChange={onAllowCustomValueChange}
+    />
+  );
+}
+
+export function getCustomVariableOptions(variable: SceneVariable): OptionsPaneItemDescriptor[] {
+  if (!(variable instanceof CustomVariable)) {
+    return [];
+  }
+
+  return [
+    new OptionsPaneItemDescriptor({
+      title: t('dashboard.edit-pane.variable.custom-options.values', 'Values separated by comma'),
+      id: 'custom-variable-values',
+      render: ({ props }) => <PaneItem id={props.id} variable={variable} />,
+    }),
+  ];
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ModalEditor.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ModalEditor.tsx
new file mode 100644
index 00000000000..3e8a8aa57b1
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ModalEditor.tsx
@@ -0,0 +1,47 @@
+import { useCallback, useRef } from 'react';
+
+import { selectors } from '@grafana/e2e-selectors';
+import { t, Trans } from '@grafana/i18n';
+import { CustomVariable } from '@grafana/scenes';
+import { Button, Modal, Stack } from '@grafana/ui';
+
+import { VariableStaticOptionsFormRef } from '../../components/VariableStaticOptionsForm';
+import { VariableStaticOptionsFormAddButton } from '../../components/VariableStaticOptionsFormAddButton';
+
+import { ValuesBuilder } from './ValuesBuilder';
+import { ValuesPreview } from './ValuesPreview';
+
+interface ModalEditorProps {
+  variable: CustomVariable;
+  isOpen: boolean;
+  onClose: () => void;
+}
+
+export function ModalEditor({ variable, isOpen, onClose }: ModalEditorProps) {
+  const formRef = useRef<VariableStaticOptionsFormRef | null>(null);
+
+  const handleOnAdd = useCallback(() => formRef.current?.addItem(), []);
+
+  return (
+    <Modal
+      title={t('dashboard.edit-pane.variable.custom-options.modal-title', 'Custom Variable')}
+      isOpen={isOpen}
+      onDismiss={onClose}
+    >
+      <Stack direction="column" gap={2}>
+        <ValuesBuilder variable={variable} ref={formRef} />
+        <ValuesPreview variable={variable} />
+      </Stack>
+      <Modal.ButtonRow leftItems={<VariableStaticOptionsFormAddButton onAdd={handleOnAdd} />}>
+        <Button
+          variant="secondary"
+          fill="outline"
+          onClick={onClose}
+          data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.closeButton}
+        >
+          <Trans i18nKey="dashboard.edit-pane.variable.custom-options.close">Close</Trans>
+        </Button>
+      </Modal.ButtonRow>
+    </Modal>
+  );
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/PaneItem.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/PaneItem.tsx
new file mode 100644
index 00000000000..e453fc6b8b8
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/PaneItem.tsx
@@ -0,0 +1,37 @@
+import { useState } from 'react';
+
+import { selectors } from '@grafana/e2e-selectors';
+import { t, Trans } from '@grafana/i18n';
+import { CustomVariable } from '@grafana/scenes';
+import { Box, Button } from '@grafana/ui';
+
+import { ModalEditor } from './ModalEditor';
+
+interface PaneItemProps {
+  variable: CustomVariable;
+  id?: string;
+}
+
+export function PaneItem({ variable }: PaneItemProps) {
+  const [isOpen, setIsOpen] = useState(false);
+
+  return (
+    <>
+      <Box display="flex" direction="column" paddingBottom={1}>
+        <Button
+          tooltip={t(
+            'dashboard.edit-pane.variable.open-editor-tooltip',
+            'For more variable options open variable editor'
+          )}
+          onClick={() => setIsOpen(true)}
+          size="sm"
+          fullWidth
+          data-testid={selectors.pages.Dashboard.Settings.Variables.Edit.CustomVariable.optionsOpenButton}
+        >
+          <Trans i18nKey="dashboard.edit-pane.variable.open-editor">Open variable editor</Trans>
+        </Button>
+      </Box>
+      <ModalEditor variable={variable} isOpen={isOpen} onClose={() => setIsOpen(false)} />
+    </>
+  );
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesBuilder.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesBuilder.tsx
new file mode 100644
index 00000000000..e2eceea5fd3
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesBuilder.tsx
@@ -0,0 +1,52 @@
+import { forwardRef, useCallback } from 'react';
+import { lastValueFrom } from 'rxjs';
+
+import { CustomVariable, VariableValueOption, VariableValueSingle } from '@grafana/scenes';
+
+import { VariableStaticOptionsForm, VariableStaticOptionsFormRef } from '../../components/VariableStaticOptionsForm';
+
+interface ValuesBuilderProps {
+  variable: CustomVariable;
+}
+
+export const ValuesBuilder = forwardRef<VariableStaticOptionsFormRef, ValuesBuilderProps>(function (
+  { variable }: ValuesBuilderProps,
+  ref
+) {
+  const { query } = variable.useState();
+
+  const options = variable.transformCsvStringToOptions(query, false).map(({ label, value }) => ({
+    value,
+    label: value === label ? '' : label,
+  }));
+
+  const escapeEntities = useCallback((text: VariableValueSingle) => String(text).trim().replaceAll(',', '\\,'), []);
+
+  const formatOption = useCallback(
+    (option: VariableValueOption) => {
+      if (!option.label || option.label === option.value) {
+        return escapeEntities(option.value);
+      }
+
+      return `${escapeEntities(option.label)} : ${escapeEntities(String(option.value))}`;
+    },
+    [escapeEntities]
+  );
+
+  const generateQuery = useCallback(
+    (options: VariableValueOption[]) => options.map(formatOption).join(', '),
+    [formatOption]
+  );
+
+  const handleOptionsChange = useCallback(
+    async (options: VariableValueOption[]) => {
+      variable.setState({ query: generateQuery(options) });
+      await lastValueFrom(variable.validateAndUpdate!());
+    },
+    [variable, generateQuery]
+  );
+
+  return <VariableStaticOptionsForm options={options} onChange={handleOptionsChange} ref={ref} isInModal />;
+});
+
+ValuesBuilder.displayName = 'ValuesBuilder';
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesPreview.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesPreview.tsx
new file mode 100644
index 00000000000..49a3e8dd55b
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/ValuesPreview.tsx
@@ -0,0 +1,13 @@
+import { CustomVariable } from '@grafana/scenes';
+
+import { VariableValuesPreview } from '../../components/VariableValuesPreview';
+import { hasVariableOptions } from '../../utils';
+
+export function ValuesPreview({ variable }: { variable: CustomVariable }) {
+  // Workaround to toggle a component refresh when values change so that the preview is updated
+  variable.useState();
+
+  const isHasVariableOptions = hasVariableOptions(variable);
+
+  return isHasVariableOptions ? <VariableValuesPreview options={variable.getOptionsForSelect(false)} /> : null;
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/getCustomVariableOptions.tsx b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/getCustomVariableOptions.tsx
new file mode 100644
index 00000000000..5033ebb1407
--- /dev/null
+++ b/public/app/features/dashboard-scene/settings/variables/editors/CustomVariableEditor/getCustomVariableOptions.tsx
@@ -0,0 +1,20 @@
+import { t } from '@grafana/i18n';
+import { CustomVariable, SceneVariable } from '@grafana/scenes';
+
+import { OptionsPaneItemDescriptor } from '../../../../../dashboard/components/PanelEditor/OptionsPaneItemDescriptor';
+
+import { PaneItem } from './PaneItem';
+
+export function getCustomVariableOptions(variable: SceneVariable): OptionsPaneItemDescriptor[] {
+  if (!(variable instanceof CustomVariable)) {
+    return [];
+  }
+
+  return [
+    new OptionsPaneItemDescriptor({
+      title: t('dashboard.edit-pane.variable.custom-options.values', 'Values separated by comma'),
+      id: 'custom-variable-values',
+      render: ({ props }) => <PaneItem id={props.id} variable={variable} />,
+    }),
+  ];
+}
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.test.tsx b/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.test.tsx
index 64c14e4cfc1..ff1b0e88a66 100644
--- a/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.test.tsx
+++ b/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.test.tsx
@@ -384,17 +384,15 @@ describe('QueryVariableEditor', () => {
     await userEvent.click(staticOptionsToggle);
 
     // Add first static option
-    const addButton = getByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsAddButton
-    );
+    const addButton = getByTestId(selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.addButton);
     await user.click(addButton);
 
     // Enter label and value for first option
     const labelInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsLabelInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput
     );
     const valueInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsValueInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput
     );
 
     await user.type(labelInputs[0], 'First Option');
@@ -411,10 +409,10 @@ describe('QueryVariableEditor', () => {
 
     // Get updated inputs (now there should be 2 sets)
     const updatedLabelInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsLabelInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.labelInput
     );
     const updatedValueInputs = getAllByTestId(
-      selectors.pages.Dashboard.Settings.Variables.Edit.QueryVariable.queryOptionsStaticOptionsValueInput
+      selectors.pages.Dashboard.Settings.Variables.Edit.StaticOptionsEditor.valueInput
     );
 
     // Enter label and value for second option
diff --git a/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.tsx b/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.tsx
index 2e32afe02cf..da1649776b2 100644
--- a/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.tsx
+++ b/public/app/features/dashboard-scene/settings/variables/editors/QueryVariableEditor.tsx
@@ -14,7 +14,11 @@ import { DataSourcePicker } from 'app/features/datasources/components/picker/Dat
 import { getVariableQueryEditor } from 'app/features/variables/editor/getVariableQueryEditor';
 import { QueryVariableRefreshSelect } from 'app/features/variables/query/QueryVariableRefreshSelect';
 import { QueryVariableSortSelect } from 'app/features/variables/query/QueryVariableSortSelect';
-import { StaticOptionsOrderType, StaticOptionsType } from 'app/features/variables/query/QueryVariableStaticOptions';
+import {
+  QueryVariableStaticOptions,
+  StaticOptionsOrderType,
+  StaticOptionsType,
+} from 'app/features/variables/query/QueryVariableStaticOptions';
 
 import { QueryVariableEditorForm } from '../components/QueryVariableForm';
 import { VariableTextAreaField } from '../components/VariableTextAreaField';
@@ -186,7 +190,15 @@ export function ModalEditor({ variable }: { variable: QueryVariable }) {
 }
 
 export function Editor({ variable }: { variable: QueryVariable }) {
-  const { datasource: datasourceRef, sort, refresh, query, regex } = variable.useState();
+  const {
+    datasource: datasourceRef,
+    sort,
+    refresh,
+    query,
+    regex,
+    staticOptions,
+    staticOptionsOrder,
+  } = variable.useState();
   const { value: timeRange } = sceneGraph.getTimeRange(variable).useState();
   const { value: dsConfig } = useAsync(async () => {
     const datasource = await getDataSourceSrv().get(datasourceRef ?? '');
@@ -229,6 +241,12 @@ export function Editor({ variable }: { variable: QueryVariable }) {
   const onRefreshChange = (refresh: VariableRefresh) => {
     variable.setState({ refresh: refresh });
   };
+  const onStaticOptionsChange = (staticOptions: StaticOptionsType) => {
+    variable.setState({ staticOptions });
+  };
+  const onStaticOptionsOrderChange = (staticOptionsOrder: StaticOptionsOrderType) => {
+    variable.setState({ staticOptionsOrder });
+  };
 
   const isHasVariableOptions = hasVariableOptions(variable);
 
@@ -237,6 +255,7 @@ export function Editor({ variable }: { variable: QueryVariable }) {
       <Field
         label={t('dashboard-scene.query-variable-editor-form.label-target-data-source', 'Target data source')}
         htmlFor="data-source-picker"
+        noMargin
       >
         <DataSourcePicker current={selectedDatasource} onChange={onDataSourceChange} variables={true} width={30} />
       </Field>
@@ -292,6 +311,15 @@ export function Editor({ variable }: { variable: QueryVariable }) {
         refresh={refresh}
       />
 
+      {onStaticOptionsChange && onStaticOptionsOrderChange && (
+        <QueryVariableStaticOptions
+          staticOptions={staticOptions}
+          staticOptionsOrder={staticOptionsOrder}
+          onStaticOptionsChange={onStaticOptionsChange}
+          onStaticOptionsOrderChange={onStaticOptionsOrderChange}
+        />
+      )}
+
       {isHasVariableOptions && <VariableValuesPreview options={variable.getOptionsForSelect(false)} />}
     </div>
   );
diff --git a/public/app/features/dashboard-scene/settings/variables/utils.test.ts b/public/app/features/dashboard-scene/settings/variables/utils.test.ts
index 2d9b07c1d38..52e5847148e 100644
--- a/public/app/features/dashboard-scene/settings/variables/utils.test.ts
+++ b/public/app/features/dashboard-scene/settings/variables/utils.test.ts
@@ -17,7 +17,7 @@ import { SHARED_DASHBOARD_QUERY, DASHBOARD_DATASOURCE_PLUGIN_ID } from 'app/plug
 
 import { AdHocFiltersVariableEditor } from './editors/AdHocFiltersVariableEditor';
 import { ConstantVariableEditor } from './editors/ConstantVariableEditor';
-import { CustomVariableEditor } from './editors/CustomVariableEditor';
+import { CustomVariableEditor } from './editors/CustomVariableEditor/CustomVariableEditor';
 import { DataSourceVariableEditor } from './editors/DataSourceVariableEditor';
 import { GroupByVariableEditor } from './editors/GroupByVariableEditor';
 import { IntervalVariableEditor } from './editors/IntervalVariableEditor';
diff --git a/public/app/features/dashboard-scene/settings/variables/utils.ts b/public/app/features/dashboard-scene/settings/variables/utils.ts
index adebfc52889..23941e3e330 100644
--- a/public/app/features/dashboard-scene/settings/variables/utils.ts
+++ b/public/app/features/dashboard-scene/settings/variables/utils.ts
@@ -27,7 +27,8 @@ import { getIntervalsQueryFromNewIntervalModel } from '../../utils/utils';
 
 import { AdHocFiltersVariableEditor, getAdHocFilterOptions } from './editors/AdHocFiltersVariableEditor';
 import { ConstantVariableEditor, getConstantVariableOptions } from './editors/ConstantVariableEditor';
-import { CustomVariableEditor, getCustomVariableOptions } from './editors/CustomVariableEditor';
+import { CustomVariableEditor } from './editors/CustomVariableEditor/CustomVariableEditor';
+import { getCustomVariableOptions } from './editors/CustomVariableEditor/getCustomVariableOptions';
 import { DataSourceVariableEditor, getDataSourceVariableOptions } from './editors/DataSourceVariableEditor';
 import { getGroupByVariableOptions, GroupByVariableEditor } from './editors/GroupByVariableEditor';
 import { getIntervalVariableOptions, IntervalVariableEditor } from './editors/IntervalVariableEditor';
@@ -38,7 +39,7 @@ import { TextBoxVariableEditor, getTextBoxVariableOptions } from './editors/Text
 interface EditableVariableConfig {
   name: string;
   description: string;
-  editor: React.ComponentType<any>;
+  editor: React.ComponentType<any>; // eslint-disable-line @typescript-eslint/no-explicit-any
   getOptions?: (variable: SceneVariable) => OptionsPaneItemDescriptor[];
 }
 
@@ -132,6 +133,7 @@ export const getEditableVariables: () => Record<EditableVariableType, EditableVa
 
 export function getEditableVariableDefinition(type: string): EditableVariableConfig {
   const editableVariables = getEditableVariables();
+  // eslint-disable-next-line @typescript-eslint/consistent-type-assertions
   const editableVariable = editableVariables[type as EditableVariableType];
   if (!editableVariable) {
     throw new Error(`Variable type ${type} not found`);
diff --git a/public/app/features/variables/query/QueryVariableStaticOptions.tsx b/public/app/features/variables/query/QueryVariableStaticOptions.tsx
index 8e7abbb97a3..9ee4e03f17d 100644
--- a/public/app/features/variables/query/QueryVariableStaticOptions.tsx
+++ b/public/app/features/variables/query/QueryVariableStaticOptions.tsx
@@ -5,8 +5,8 @@ import { t, Trans } from '@grafana/i18n';
 import { QueryVariable } from '@grafana/scenes';
 import { Field, Stack, Switch } from '@grafana/ui';
 import { VariableLegend } from 'app/features/dashboard-scene/settings/variables/components/VariableLegend';
-import { VariableOptionsInput } from 'app/features/dashboard-scene/settings/variables/components/VariableOptionsInput';
 import { VariableSelectField } from 'app/features/dashboard-scene/settings/variables/components/VariableSelectField';
+import { VariableStaticOptionsForm } from 'app/features/dashboard-scene/settings/variables/components/VariableStaticOptionsForm';
 
 export type StaticOptionsType = QueryVariable['state']['staticOptions'];
 export type StaticOptionsOrderType = QueryVariable['state']['staticOptionsOrder'];
@@ -65,7 +65,11 @@ export function QueryVariableStaticOptions(props: QueryVariableStaticOptionsProp
               />
 
               {areStaticOptionsEnabled && (
-                <VariableOptionsInput width={60} options={staticOptions ?? []} onChange={onStaticOptionsChange} />
+                <VariableStaticOptionsForm
+                  allowEmptyValue
+                  options={staticOptions ?? []}
+                  onChange={onStaticOptionsChange}
+                />
               )}
             </Stack>
           </>
diff --git a/public/locales/en-US/grafana.json b/public/locales/en-US/grafana.json
index 189ec56399c..1556f5b49eb 100644
--- a/public/locales/en-US/grafana.json
+++ b/public/locales/en-US/grafana.json
@@ -4749,8 +4749,9 @@
       },
       "variable": {
         "custom-options": {
-          "values": "Values separated by comma",
-          "values-placeholder": "1, 10, mykey : myvalue, myvalue, escaped,value"
+          "close": "Close",
+          "modal-title": "Custom Variable",
+          "values": "Values separated by comma"
         },
         "datasource-options": {
           "name-filter": "Name filter",
@@ -14139,15 +14140,20 @@
       }
     },
     "query-variable-static-options": {
-      "add-option-button-label": "Add option",
-      "description": "Add custom options in addition to query results",
-      "label-placeholder": "display label",
-      "remove-option-button-label": "Remove option",
-      "value-placeholder": "value, default empty string"
+      "description": "Add custom options in addition to query results"
     },
     "query-variable-static-options-sort-select": {
       "description-values-variable": "How to sort static options with query results"
     },
+    "static-options": {
+      "add-option-button-label": "Add new option",
+      "drag-and-drop": "Drag and drop to reorder",
+      "label-header": "Display text",
+      "label-placeholder": "Defaults to value",
+      "remove-option-button-label": "Remove option",
+      "value-header": "Value",
+      "value-placeholder": "Value"
+    },
     "text-box-variable-editor": {
       "name-default-value": "Default value",
       "placeholder-default-value-if-any": "default value, if any",
diff --git a/yarn.lock b/yarn.lock
index 820778b8c7d..81878e5f144 100644
--- a/yarn.lock
+++ b/yarn.lock
@@ -3524,11 +3524,11 @@ __metadata:
   languageName: unknown
   linkType: soft
 
-"@grafana/scenes-react@npm:6.39.3":
-  version: 6.39.3
-  resolution: "@grafana/scenes-react@npm:6.39.3"
+"@grafana/scenes-react@npm:6.39.4":
+  version: 6.39.4
+  resolution: "@grafana/scenes-react@npm:6.39.4"
   dependencies:
-    "@grafana/scenes": "npm:6.39.3"
+    "@grafana/scenes": "npm:6.39.4"
     lru-cache: "npm:^10.2.2"
     react-use: "npm:^17.4.0"
   peerDependencies:
@@ -3540,13 +3540,13 @@ __metadata:
     react: ^18.0.0
     react-dom: ^18.0.0
     react-router-dom: ^6.28.0
-  checksum: 10/7e989c0d34ab23add873fcdf8f2ebf2bb94c7cfd427631be13da4a08a0f78832c354868d97e584534a69a4bf4224fcb49a8d49fb16bf43cbed58203bd36c90d4
+  checksum: 10/9acbf6b80af12cb6807f9ba364d6684c967ebe65eb4ab51e8c3f6e461476d71cb89e64b53ba9a9e29a62972fb7876877be630a685aa32c815d4b36cb9ff4d9f5
   languageName: node
   linkType: hard
 
-"@grafana/scenes@npm:6.39.3":
-  version: 6.39.3
-  resolution: "@grafana/scenes@npm:6.39.3"
+"@grafana/scenes@npm:6.39.4":
+  version: 6.39.4
+  resolution: "@grafana/scenes@npm:6.39.4"
   dependencies:
     "@floating-ui/react": "npm:^0.26.16"
     "@leeoniya/ufuzzy": "npm:^1.0.16"
@@ -3566,7 +3566,7 @@ __metadata:
     react: ^18.0.0
     react-dom: ^18.0.0
     react-router-dom: ^6.28.0
-  checksum: 10/e5ddaf4f5e9afc7370eb4b6608d26056d1e4072465c2179e87415ac4ad01a4f8693bafaa372d7ed8ec6f295847561116ea85993cb5e5e6c4927fbb82b56f2e96
+  checksum: 10/07126c816f69fa69a06e6f4c77028bed515d4bd4d9cc0e081bbd2e4e4bfa8c9b1b0c41e5b686a646542a205e22a88826bcdd795896240e95857823c82a8a5fe5
   languageName: node
   linkType: hard
 
@@ -18289,8 +18289,8 @@ __metadata:
     "@grafana/plugin-ui": "npm:^0.10.10"
     "@grafana/prometheus": "workspace:*"
     "@grafana/runtime": "workspace:*"
-    "@grafana/scenes": "npm:6.39.3"
-    "@grafana/scenes-react": "npm:6.39.3"
+    "@grafana/scenes": "npm:6.39.4"
+    "@grafana/scenes-react": "npm:6.39.4"
     "@grafana/schema": "workspace:*"
     "@grafana/sql": "workspace:*"
     "@grafana/test-utils": "workspace:*"