diff --git a/source/blender/blenkernel/BKE_lib_override.h b/source/blender/blenkernel/BKE_lib_override.h
index 3eb0ff44129..27076d908e7 100644
--- a/source/blender/blenkernel/BKE_lib_override.h
+++ b/source/blender/blenkernel/BKE_lib_override.h
@@ -99,6 +99,8 @@ void BKE_lib_override_library_main_resync(struct Main *bmain,
 
 void BKE_lib_override_library_delete(struct Main *bmain, struct ID *id_root);
 
+void BKE_lib_override_library_make_local(struct ID *id);
+
 struct IDOverrideLibraryProperty *BKE_lib_override_library_property_find(
     struct IDOverrideLibrary *override, const char *rna_path);
 struct IDOverrideLibraryProperty *BKE_lib_override_library_property_get(
diff --git a/source/blender/blenkernel/intern/lib_id.c b/source/blender/blenkernel/intern/lib_id.c
index b7cacba20b3..8bcfb8e159c 100644
--- a/source/blender/blenkernel/intern/lib_id.c
+++ b/source/blender/blenkernel/intern/lib_id.c
@@ -1941,13 +1941,13 @@ void BKE_library_make_local(Main *bmain,
         ntree->tag &= ~LIB_TAG_DOIT;
       }
 
-      if (id->lib == NULL) {
+      if (!ID_IS_LINKED(id->lib)) {
         id->tag &= ~(LIB_TAG_EXTERN | LIB_TAG_INDIRECT | LIB_TAG_NEW);
         id->flag &= ~LIB_INDIRECT_WEAK_LINK;
         if (ID_IS_OVERRIDE_LIBRARY_REAL(id) &&
             ELEM(lib, NULL, id->override_library->reference->lib) &&
             ((untagged_only == false) || !(id->tag & LIB_TAG_PRE_EXISTING))) {
-          BKE_lib_override_library_free(&id->override_library, true);
+          BKE_lib_override_library_make_local(id);
         }
       }
       /* The check on the fourth line (LIB_TAG_PRE_EXISTING) is done so it's possible to tag data
diff --git a/source/blender/blenkernel/intern/lib_override.c b/source/blender/blenkernel/intern/lib_override.c
index 9a45f484581..f3d43aaa44f 100644
--- a/source/blender/blenkernel/intern/lib_override.c
+++ b/source/blender/blenkernel/intern/lib_override.c
@@ -1788,6 +1788,33 @@ void BKE_lib_override_library_delete(Main *bmain, ID *id_root)
   BKE_main_id_tag_all(bmain, LIB_TAG_DOIT, false);
 }
 
+/** Make given ID fully local.
+ *
+ *  \note Only differs from lower-level `BKE_lib_override_library_free in infamous embedded ID
+ *        cases.
+ */
+void BKE_lib_override_library_make_local(ID *id)
+{
+  BKE_lib_override_library_free(&id->override_library, true);
+
+  Key *shape_key = BKE_key_from_id(id);
+  if (shape_key != NULL) {
+    shape_key->id.flag &= ~LIB_EMBEDDED_DATA_LIB_OVERRIDE;
+  }
+
+  if (GS(id->name) == ID_SCE) {
+    Collection *master_collection = ((Scene *)id)->master_collection;
+    if (master_collection != NULL) {
+      master_collection->id.flag &= ~LIB_EMBEDDED_DATA_LIB_OVERRIDE;
+    }
+  }
+
+  bNodeTree *node_tree = ntreeFromID(id);
+  if (node_tree != NULL) {
+    node_tree->id.flag &= ~LIB_EMBEDDED_DATA_LIB_OVERRIDE;
+  }
+}
+
 BLI_INLINE IDOverrideLibraryRuntime *override_library_rna_path_runtime_ensure(
     IDOverrideLibrary *override)
 {
diff --git a/source/blender/editors/interface/interface_templates.c b/source/blender/editors/interface/interface_templates.c
index ab338a85e49..2c58277293d 100644
--- a/source/blender/editors/interface/interface_templates.c
+++ b/source/blender/editors/interface/interface_templates.c
@@ -687,7 +687,7 @@ static void template_id_cb(bContext *C, void *arg_litem, void *arg_event)
       break;
     case UI_ID_OVERRIDE:
       if (id && ID_IS_OVERRIDE_LIBRARY(id)) {
-        BKE_lib_override_library_free(&id->override_library, true);
+        BKE_lib_override_library_make_local(id);
         /* Reassign to get proper updates/notifiers. */
         idptr = RNA_property_pointer_get(&template_ui->ptr, template_ui->prop);
         RNA_property_pointer_set(&template_ui->ptr, template_ui->prop, idptr, NULL);