diff --git a/.changeset/two-coins-stop.md b/.changeset/two-coins-stop.md
new file mode 100644
index 0000000000..005ea81121
--- /dev/null
+++ b/.changeset/two-coins-stop.md
@@ -0,0 +1,5 @@
+---
+'@backstage/plugin-scaffolder': patch
+---
+
+Prevent the MultiEntityPicker from removing options present in form state when new options are selected
diff --git a/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.test.tsx b/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.test.tsx
index a02d793a34..fc824f20f9 100644
--- a/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.test.tsx
+++ b/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.test.tsx
@@ -262,6 +262,71 @@ describe('<MultiEntityPicker />', () => {
     });
   });
 
+  describe('with existing form data', () => {
+    beforeEach(() => {
+      uiSchema = { 'ui:options': {} };
+      props = {
+        onChange,
+        schema,
+        required,
+        uiSchema,
+        rawErrors,
+        formData: ['group:default/team-a'],
+      } as unknown as FieldProps;
+    });
+
+    it('preserves existing data on blur', async () => {
+      const { getByRole } = await renderInTestApp(
+        <Wrapper>
+          <MultiEntityPicker {...props} />
+        </Wrapper>,
+      );
+
+      const input = getByRole('textbox');
+
+      fireEvent.change(input, { target: { value: 'squ' } });
+      fireEvent.blur(input);
+
+      expect(onChange).toHaveBeenCalledWith(['group:default/team-a', 'squ']);
+    });
+
+    it('preserves existing data on value create', async () => {
+      const { getByRole } = await renderInTestApp(
+        <Wrapper>
+          <MultiEntityPicker {...props} />
+        </Wrapper>,
+      );
+
+      const input = getByRole('textbox');
+
+      fireEvent.change(input, { target: { value: 'squ' } });
+      fireEvent.keyDown(input, { key: 'Enter', code: 'Enter' });
+
+      expect(onChange).toHaveBeenCalledWith(['group:default/team-a', 'squ']);
+    });
+
+    it('preserves existing data on selecting an existing option', async () => {
+      catalogApi.getEntities.mockResolvedValue({ items: entities });
+
+      const { getByRole } = await renderInTestApp(
+        <Wrapper>
+          <MultiEntityPicker {...props} />
+        </Wrapper>,
+      );
+
+      const input = getByRole('textbox');
+
+      fireEvent.mouseDown(input);
+      const optionA = screen.getByText('squad-b');
+      await userEvent.click(optionA as HTMLElement);
+
+      expect(onChange).toHaveBeenCalledWith([
+        'group:default/team-a',
+        'group:default/squad-b',
+      ]);
+    });
+  });
+
   describe('uses full entity ref', () => {
     beforeEach(() => {
       uiSchema = {
diff --git a/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.tsx b/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.tsx
index 57c4b87d6d..39130c4b78 100644
--- a/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.tsx
+++ b/plugins/scaffolder/src/components/fields/MultiEntityPicker/MultiEntityPicker.tsx
@@ -50,6 +50,12 @@ import { scaffolderTranslationRef } from '../../../translation';
 
 export { MultiEntityPickerSchema } from './schema';
 
+// AutocompleteChangeReason events that can be triggered when a user inputs a freeSolo option
+const FREE_SOLO_EVENTS: readonly AutocompleteChangeReason[] = [
+  'blur',
+  'create-option',
+];
+
 /**
  * The underlying component that is rendered in the form for the `MultiEntityPicker`
  * field extension.
@@ -110,29 +116,34 @@ export const MultiEntityPicker = (props: MultiEntityPickerProps) => {
     (_: any, refs: (string | Entity)[], reason: AutocompleteChangeReason) => {
       const values = refs
         .map(ref => {
+          // If the ref is not a string, then it was a selected option in the picker
           if (typeof ref !== 'string') {
             // if ref does not exist: pass 'undefined' to trigger validation for required value
             return ref ? stringifyEntityRef(ref as Entity) : undefined;
           }
-          if (reason === 'blur' || reason === 'create-option') {
-            // Add in default namespace, etc.
-            let entityRef = ref;
-            try {
-              // Attempt to parse the entity ref into it's full form.
-              entityRef = stringifyEntityRef(
-                parseEntityRef(ref as string, {
-                  defaultKind,
-                  defaultNamespace,
-                }),
-              );
-            } catch (err) {
-              // If the passed in value isn't an entity ref, do nothing.
-            }
 
-            // We need to check against formData here as that's the previous value for this field.
-            if (formData?.includes(ref) || allowArbitraryValues) {
-              return entityRef;
-            }
+          // Add in default namespace, etc.
+          let entityRef = ref;
+          try {
+            // Attempt to parse the entity ref into it's full form.
+            entityRef = stringifyEntityRef(
+              parseEntityRef(ref as string, {
+                defaultKind,
+                defaultNamespace,
+              }),
+            );
+          } catch (err) {
+            // If the passed in value isn't an entity ref, do nothing.
+          }
+
+          // We need to check against formData here as that's the previous value for this field.
+          if (
+            // If value already matches what exists in form data, allow it
+            formData?.includes(ref) ||
+            // If arbitrary values are allowed and the reason is a free solo event, allow it
+            (allowArbitraryValues && FREE_SOLO_EVENTS.includes(reason))
+          ) {
+            return entityRef;
           }
 
           return undefined;