diff --git a/.changeset/dirty-chairs-march.md b/.changeset/dirty-chairs-march.md
new file mode 100644
index 0000000000..c4e22657a6
--- /dev/null
+++ b/.changeset/dirty-chairs-march.md
@@ -0,0 +1,5 @@
+---
+'@backstage/plugin-scaffolder-backend-module-gitlab': patch
+---
+
+Add merge method and squash option for project creation
diff --git a/plugins/scaffolder-backend-module-gitlab/api-report.md b/plugins/scaffolder-backend-module-gitlab/api-report.md
index 4fb965eb13..ca98aa558b 100644
--- a/plugins/scaffolder-backend-module-gitlab/api-report.md
+++ b/plugins/scaffolder-backend-module-gitlab/api-report.md
@@ -145,6 +145,13 @@ export function createPublishGitlabAction(options: {
           auto_devops_enabled?: boolean | undefined;
           ci_config_path?: string | undefined;
           description?: string | undefined;
+          merge_method?: 'merge' | 'ff' | 'rebase_merge' | undefined;
+          squash_option?:
+            | 'always'
+            | 'never'
+            | 'default_on'
+            | 'default_off'
+            | undefined;
           topics?: string[] | undefined;
           visibility?: 'internal' | 'private' | 'public' | undefined;
         }
diff --git a/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.examples.ts b/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.examples.ts
index ad032e9017..9746bfabe2 100644
--- a/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.examples.ts
+++ b/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.examples.ts
@@ -87,6 +87,26 @@ export const examples: TemplateExample[] = [
       ],
     }),
   },
+  {
+    description:
+      'Initializes a GitLab repository with fast forward merge and always squash settings.',
+    example: yaml.stringify({
+      steps: [
+        {
+          id: 'publish',
+          action: 'publish:gitlab',
+          name: 'Publish to GitLab',
+          input: {
+            repoUrl: 'gitlab.com?repo=project_name&owner=group_name',
+            settings: {
+              merge_method: 'ff',
+              squash_option: 'always',
+            },
+          },
+        },
+      ],
+    }),
+  },
   {
     description: 'Initializes a GitLab repository with branch settings.',
     example: yaml.stringify({
diff --git a/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.ts b/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.ts
index 22f875ca8d..020e8a9c18 100644
--- a/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.ts
+++ b/plugins/scaffolder-backend-module-gitlab/src/actions/gitlab.ts
@@ -56,6 +56,8 @@ export function createPublishGitlabAction(options: {
       auto_devops_enabled?: boolean;
       ci_config_path?: string;
       description?: string;
+      merge_method?: 'merge' | 'rebase_merge' | 'ff';
+      squash_option?: 'default_off' | 'default_on' | 'never' | 'always';
       topics?: string[];
       visibility?: 'private' | 'internal' | 'public';
     };
@@ -169,6 +171,19 @@ export function createPublishGitlabAction(options: {
                 description: 'Short project description',
                 type: 'string',
               },
+              merge_method: {
+                title: 'Merge Method to use',
+                description: 'Merge Methods (merge, rebase_merge, ff)',
+                type: 'string',
+                enum: ['merge', 'rebase_merge', 'ff'],
+              },
+              squash_option: {
+                title: 'Squash option',
+                description:
+                  'Set squash option for the project (never, always, default_on, default_off)',
+                type: 'string',
+                enum: ['default_off', 'default_on', 'never', 'always'],
+              },
               topics: {
                 title: 'Topic labels',
                 description: 'Topic labels to apply on the repository',