diff --git a/packages/scenes/src/components/VizPanel/VizPanel.test.tsx b/packages/scenes/src/components/VizPanel/VizPanel.test.tsx
index a19ec45cb..ee9a548d3 100644
--- a/packages/scenes/src/components/VizPanel/VizPanel.test.tsx
+++ b/packages/scenes/src/components/VizPanel/VizPanel.test.tsx
@@ -48,6 +48,7 @@ jest.mock('react-use', () => ({
 interface OptionsPlugin1 {
   showThresholds: boolean;
   option2?: string;
+  option3?: string;
   sortBy?: string[];
 }
 
@@ -58,6 +59,21 @@ interface FieldConfigPlugin1 {
   junkProp?: boolean;
 }
 
+interface OptionsPlugin2 {
+  showThresholds: boolean;
+  option2?: string;
+  option3?: string;
+  option4?: string;
+  sortBy?: string[];
+}
+
+interface FieldConfigPlugin2 {
+  customPropInOtherPlugin?: boolean;
+  customProp2InOtherPlugin?: boolean;
+  customProp3?: string;
+  hideFrom?: boolean;
+}
+
 let panelProps: PanelProps | undefined;
 let panelRenderCount = 0;
 
@@ -91,6 +107,11 @@ function getTestPlugin1(dataSupport?: PanelPluginDataSupport) {
       path: 'option2',
       defaultValue: undefined,
     });
+    builder.addTextInput({
+      name: 'option3',
+      path: 'option3',
+      defaultValue: 'option3 value plugin 1',
+    });
   });
 
   pluginToLoad.useFieldConfig({
@@ -165,6 +186,16 @@ function getTestPlugin2(dataSupport?: PanelPluginDataSupport) {
       path: 'option2',
       defaultValue: undefined,
     });
+    builder.addTextInput({
+      name: 'option3',
+      path: 'option3',
+      defaultValue: 'option3 value plugin 2',
+    });
+    builder.addTextInput({
+      name: 'option4',
+      path: 'option4',
+      defaultValue: 'option4 value plugin 2',
+    });
   });
 
   pluginToLoad.useFieldConfig({
@@ -515,16 +546,34 @@ describe('VizPanel', () => {
       expect(panel.state.options.option2).not.toBeDefined();
     });
 
-    test('should allow to call getPanelOptionsWithDefaults to compute new color options for plugin', () => {
+    test('should allow to override default options with empty value', () => {
+      panel.onOptionsChange({ option3: undefined });
+
+      expect(panel.state.options.option3).toBe(undefined);
+
+      panel.onOptionsChange({ option3: '' });
+
+      expect(panel.state.options.option3).toBe('');
+    });
+
+    test('should allow to call getPanelOptionsWithDefaults to compute new plugin options', async () => {
+      expect(panel.state.pluginId).toBe('custom-plugin-id');
+      expect(panel.state.pluginVersion).toBe('1.0.0');
+      panel.onOptionsChange({ option3: undefined });
+
+      pluginToLoad = getTestPlugin2();
+
       const spy = jest.spyOn(grafanaData, 'getPanelOptionsWithDefaults');
-      pluginToLoad = getTestPlugin1();
-      panel.activate();
 
-      panel.onOptionsChange({}, false, true);
+      await panel.changePluginType('custom2-plugin-id', undefined, panel.state.fieldConfig);
 
       expect(spy).toHaveBeenCalledTimes(1);
-      // Marked as after plugin change to readjust to prefered field color setting
+      // Marked as after a plugin change to readjust to preferred field color setting
       expect(spy.mock.calls[0][0].isAfterPluginChange).toBe(true);
+
+      const newPanelOptions = (panel as VizPanel<OptionsPlugin2, FieldConfigPlugin2>).state.options;
+      expect(newPanelOptions.option3).toEqual('option3 value plugin 2');
+      expect(newPanelOptions.option4).toEqual('option4 value plugin 2');
     });
   });
 
diff --git a/packages/scenes/src/components/VizPanel/VizPanel.tsx b/packages/scenes/src/components/VizPanel/VizPanel.tsx
index 9fda04e30..3eb125209 100644
--- a/packages/scenes/src/components/VizPanel/VizPanel.tsx
+++ b/packages/scenes/src/components/VizPanel/VizPanel.tsx
@@ -363,7 +363,15 @@ export class VizPanel<TOptions = {}, TFieldConfig extends {} = {}> extends Scene
     const updatedOptions = this._plugin?.onPanelTypeChanged?.(panel, prevPluginId, prevOptions, prevFieldConfig);
 
     if (updatedOptions && !isEmpty(updatedOptions)) {
-      this.onOptionsChange(updatedOptions, true, true);
+      const { options } = getPanelOptionsWithDefaults({
+        plugin: this._plugin!,
+        currentOptions: updatedOptions,
+        currentFieldConfig: this.state.fieldConfig,
+        isAfterPluginChange: isAfterPluginChange,
+      });
+
+      // We need to merge the update with the defaults before overwriting the options given we use replace
+      this.onOptionsChange(options as DeepPartial<TOptions>, true);
     }
   }
 
@@ -385,36 +393,30 @@ export class VizPanel<TOptions = {}, TFieldConfig extends {} = {}> extends Scene
     });
   };
 
-  public onOptionsChange = (optionsUpdate: DeepPartial<TOptions>, replace = false, isAfterPluginChange = false) => {
-    const { fieldConfig, options } = this.state;
+  public onOptionsChange = (options: DeepPartial<TOptions>, replace = false) => {
+    const { options: prevOptions } = this.state;
 
-    // When replace is true, we want to replace the entire options object. Default will be applied.
-    const nextOptions = replace
-      ? optionsUpdate
-      : mergeWith(cloneDeep(options), optionsUpdate, (objValue, srcValue, key, obj) => {
-          if (isArray(srcValue)) {
-            return srcValue;
-          }
-          // If customizer returns undefined, merging is handled by the method instead
-          // so we need to override the value in the object instead
-          if (objValue !== srcValue && typeof srcValue === 'undefined') {
-            obj[key] = srcValue;
-            return;
-          }
-          return;
-        });
+    const _renderCounter = (this.state._renderCounter ?? 0) + 1;
 
-    const withDefaults = getPanelOptionsWithDefaults({
-      plugin: this._plugin!,
-      currentOptions: nextOptions,
-      currentFieldConfig: fieldConfig,
-      isAfterPluginChange: isAfterPluginChange,
-    });
+    if (replace) {
+      return this.setState({ options, _renderCounter });
+    }
 
-    this.setState({
-      options: withDefaults.options as DeepPartial<TOptions>,
-      _renderCounter: (this.state._renderCounter ?? 0) + 1,
+    options = mergeWith(cloneDeep(prevOptions), options, (objValue, srcValue, key, obj) => {
+      if (isArray(srcValue)) {
+        return srcValue;
+      }
+
+      // If the customizer returns undefined, the method handles merging instead,
+      // So we need to override the value in the object instead
+      if (objValue !== srcValue && typeof srcValue === 'undefined') {
+        obj[key] = srcValue;
+        return;
+      }
+      return;
     });
+
+    this.setState({ options, _renderCounter });
   };
 
   public onFieldConfigChange = (fieldConfigUpdate: FieldConfigSource<DeepPartial<TFieldConfig>>, replace?: boolean) => {