diff --git a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanproduct/serialization/LoanProductDataValidator.java b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanproduct/serialization/LoanProductDataValidator.java
index 97db300d3..4d284303b 100644
--- a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanproduct/serialization/LoanProductDataValidator.java
+++ b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanproduct/serialization/LoanProductDataValidator.java
@@ -2285,7 +2285,9 @@ public final class LoanProductDataValidator {
                     considerPartialPeriodUpdates = considerPartialPeriods;
                 }
             } else if (loanProduct != null) {
-                considerPartialPeriodUpdates = loanProduct.getLoanProductRelatedDetail().isAllowPartialPeriodInterestCalcualtion();
+                if (!interestCalculationPeriodMethod.isDaily()) {
+                    considerPartialPeriodUpdates = loanProduct.getLoanProductRelatedDetail().isAllowPartialPeriodInterestCalcualtion();
+                }
             }
 
             if (!considerPartialPeriodUpdates) {
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanProductUpdateApiTest.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanProductUpdateApiTest.java
index 07118f3f0..494e6845c 100644
--- a/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanProductUpdateApiTest.java
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanProductUpdateApiTest.java
@@ -91,6 +91,43 @@ public class LoanProductUpdateApiTest {
 
     }
 
+    @Test
+    public void loanProductWithInterestCalculationTypeDailyModifyForAdvancedPaymentAllocationRuleTest() {
+        // create loan product with Advanced Payment Allocation Strategy with default allocation with future installment
+        // allocation as NEXT_INSTALLMENT
+        String futureInstallmentAllocationRule = "NEXT_INSTALLMENT";
+        AdvancedPaymentData defaultAllocation = createDefaultPaymentAllocation(futureInstallmentAllocationRule);
+
+        Integer loanProductId = createLoanProductWithInterestCalculationPeriodTypeDaily(defaultAllocation);
+        Assertions.assertNotNull(loanProductId);
+
+        // verify allocation rule
+        GetLoanProductsProductIdResponse loanProduct = LOAN_TRANSACTION_HELPER.getLoanProduct(loanProductId);
+        Assertions.assertNotNull(loanProduct.getPaymentAllocation());
+
+        Optional<AdvancedPaymentData> defaultAllocationAfterCreate = loanProduct.getPaymentAllocation().stream()
+                .filter(advancedPaymentData -> "DEFAULT".equals(advancedPaymentData.getTransactionType())).findFirst();
+        Assertions.assertTrue(defaultAllocationAfterCreate.isPresent());
+        Assertions.assertEquals(futureInstallmentAllocationRule, defaultAllocationAfterCreate.get().getFutureInstallmentAllocationRule());
+
+        // Change future installment allocation rule to "LAST_INSTALLMENT" and update loan product
+        futureInstallmentAllocationRule = "LAST_INSTALLMENT";
+        defaultAllocation = createDefaultPaymentAllocation(futureInstallmentAllocationRule);
+
+        loanProductId = updateLoanProduct(loanProductId, defaultAllocation);
+        Assertions.assertNotNull(loanProductId);
+
+        loanProduct = LOAN_TRANSACTION_HELPER.getLoanProduct(loanProductId);
+        Assertions.assertNotNull(loanProduct.getPaymentAllocation());
+
+        // verify allocation rule
+        Optional<AdvancedPaymentData> defaultAllocationAfterUpdate = loanProduct.getPaymentAllocation().stream()
+                .filter(advancedPaymentData -> "DEFAULT".equals(advancedPaymentData.getTransactionType())).findFirst();
+        Assertions.assertTrue(defaultAllocationAfterUpdate.isPresent());
+        Assertions.assertEquals(futureInstallmentAllocationRule, defaultAllocationAfterUpdate.get().getFutureInstallmentAllocationRule());
+
+    }
+
     private Integer updateLoanProduct(Integer loanProductId, AdvancedPaymentData... advancedPaymentData) {
         final PutLoanProductsProductIdRequest requestModifyLoan = new PutLoanProductsProductIdRequest()
                 .transactionProcessingStrategyCode("advanced-payment-allocation-strategy")
@@ -107,6 +144,16 @@ public class LoanProductUpdateApiTest {
 
     }
 
+    private Integer createLoanProductWithInterestCalculationPeriodTypeDaily(AdvancedPaymentData... advancedPaymentData) {
+        String loanProductCreateJSON = new LoanProductTestBuilder().withPrincipal("15,000.00").withNumberOfRepayments("4")
+                .withRepaymentAfterEvery("1").withRepaymentTypeAsMonth().withinterestRatePerPeriod("1")
+                .withInterestRateFrequencyTypeAsMonths().withAmortizationTypeAsEqualInstallments().withInterestTypeAsDecliningBalance()
+                .withInterestCalculationPeriodTypeAsDays().withAllowPartialPeriodInterestCalculation(false)
+                .addAdvancedPaymentAllocation(advancedPaymentData).build();
+        return LOAN_TRANSACTION_HELPER.getLoanProductId(loanProductCreateJSON);
+
+    }
+
     private AdvancedPaymentData createDefaultPaymentAllocation(String futureInstallmentAllocationRule) {
         AdvancedPaymentData advancedPaymentData = new AdvancedPaymentData();
         advancedPaymentData.setTransactionType("DEFAULT");
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/common/loans/LoanProductTestBuilder.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/common/loans/LoanProductTestBuilder.java
index 74a16498c..279e1dd7f 100644
--- a/integration-tests/src/test/java/org/apache/fineract/integrationtests/common/loans/LoanProductTestBuilder.java
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/common/loans/LoanProductTestBuilder.java
@@ -742,4 +742,9 @@ public class LoanProductTestBuilder {
         return this;
     }
 
+    public LoanProductTestBuilder withAllowPartialPeriodInterestCalculation(final Boolean allowPartialPeriodInterestCalcualtion) {
+        this.allowPartialPeriodInterestCalcualtion = allowPartialPeriodInterestCalcualtion;
+        return this;
+    }
+
 }