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 1e3a7eacb..97db300d3 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
@@ -2284,6 +2284,8 @@ public final class LoanProductDataValidator {
                 } else {
                     considerPartialPeriodUpdates = considerPartialPeriods;
                 }
+            } else if (loanProduct != null) {
+                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
new file mode 100644
index 000000000..07118f3f0
--- /dev/null
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanProductUpdateApiTest.java
@@ -0,0 +1,134 @@
+/**
+ * Licensed to the Apache Software Foundation (ASF) under one
+ * or more contributor license agreements. See the NOTICE file
+ * distributed with this work for additional information
+ * regarding copyright ownership. The ASF licenses this file
+ * to you under the Apache License, Version 2.0 (the
+ * "License"); you may not use this file except in compliance
+ * with the License. You may obtain a copy of the License at
+ *
+ * http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing,
+ * software distributed under the License is distributed on an
+ * "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+ * KIND, either express or implied. See the License for the
+ * specific language governing permissions and limitations
+ * under the License.
+ */
+package org.apache.fineract.integrationtests;
+
+import io.restassured.builder.RequestSpecBuilder;
+import io.restassured.builder.ResponseSpecBuilder;
+import io.restassured.http.ContentType;
+import io.restassured.specification.RequestSpecification;
+import io.restassured.specification.ResponseSpecification;
+import java.util.Arrays;
+import java.util.List;
+import java.util.Optional;
+import java.util.concurrent.atomic.AtomicInteger;
+import org.apache.fineract.client.models.AdvancedPaymentData;
+import org.apache.fineract.client.models.GetLoanProductsProductIdResponse;
+import org.apache.fineract.client.models.PaymentAllocationOrder;
+import org.apache.fineract.client.models.PutLoanProductsProductIdRequest;
+import org.apache.fineract.integrationtests.common.Utils;
+import org.apache.fineract.integrationtests.common.loans.LoanProductTestBuilder;
+import org.apache.fineract.integrationtests.common.loans.LoanTransactionHelper;
+import org.apache.fineract.portfolio.loanproduct.domain.PaymentAllocationType;
+import org.junit.jupiter.api.Assertions;
+import org.junit.jupiter.api.BeforeAll;
+import org.junit.jupiter.api.Test;
+
+public class LoanProductUpdateApiTest {
+
+    private static LoanTransactionHelper LOAN_TRANSACTION_HELPER;
+    private static ResponseSpecification RESPONSE_SPEC;
+    private static RequestSpecification REQUEST_SPEC;
+
+    @BeforeAll
+    public static void setupTests() {
+        Utils.initializeRESTAssured();
+        REQUEST_SPEC = new RequestSpecBuilder().setContentType(ContentType.JSON).build();
+        REQUEST_SPEC.header("Authorization", "Basic " + Utils.loginIntoServerAndGetBase64EncodedAuthenticationKey());
+        RESPONSE_SPEC = new ResponseSpecBuilder().expectStatusCode(200).build();
+        LOAN_TRANSACTION_HELPER = new LoanTransactionHelper(REQUEST_SPEC, RESPONSE_SPEC);
+    }
+
+    @Test
+    public void loanProductModifyForAdvancedPaymentAllocationRuleTest() {
+        // 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 = createLoanProduct(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")
+                .paymentAllocation(Arrays.stream(advancedPaymentData).toList()).locale("en");
+        return LOAN_TRANSACTION_HELPER.updateLoanProduct(loanProductId.longValue(), requestModifyLoan).getResourceId().intValue();
+    }
+
+    private Integer createLoanProduct(AdvancedPaymentData... advancedPaymentData) {
+        String loanProductCreateJSON = new LoanProductTestBuilder().withPrincipal("15,000.00").withNumberOfRepayments("4")
+                .withRepaymentAfterEvery("1").withRepaymentTypeAsMonth().withinterestRatePerPeriod("1")
+                .withInterestRateFrequencyTypeAsMonths().withAmortizationTypeAsEqualInstallments().withInterestTypeAsDecliningBalance()
+                .addAdvancedPaymentAllocation(advancedPaymentData).build();
+        return LOAN_TRANSACTION_HELPER.getLoanProductId(loanProductCreateJSON);
+
+    }
+
+    private AdvancedPaymentData createDefaultPaymentAllocation(String futureInstallmentAllocationRule) {
+        AdvancedPaymentData advancedPaymentData = new AdvancedPaymentData();
+        advancedPaymentData.setTransactionType("DEFAULT");
+        advancedPaymentData.setFutureInstallmentAllocationRule(futureInstallmentAllocationRule);
+
+        List<PaymentAllocationOrder> paymentAllocationOrders = getPaymentAllocationOrder(PaymentAllocationType.PAST_DUE_PENALTY,
+                PaymentAllocationType.PAST_DUE_FEE, PaymentAllocationType.PAST_DUE_PRINCIPAL, PaymentAllocationType.PAST_DUE_INTEREST,
+                PaymentAllocationType.DUE_PENALTY, PaymentAllocationType.DUE_FEE, PaymentAllocationType.DUE_PRINCIPAL,
+                PaymentAllocationType.DUE_INTEREST, PaymentAllocationType.IN_ADVANCE_PENALTY, PaymentAllocationType.IN_ADVANCE_FEE,
+                PaymentAllocationType.IN_ADVANCE_PRINCIPAL, PaymentAllocationType.IN_ADVANCE_INTEREST);
+
+        advancedPaymentData.setPaymentAllocationOrder(paymentAllocationOrders);
+        return advancedPaymentData;
+    }
+
+    private List<PaymentAllocationOrder> getPaymentAllocationOrder(PaymentAllocationType... paymentAllocationTypes) {
+        AtomicInteger integer = new AtomicInteger(1);
+        return Arrays.stream(paymentAllocationTypes).map(pat -> {
+            PaymentAllocationOrder paymentAllocationOrder = new PaymentAllocationOrder();
+            paymentAllocationOrder.setPaymentAllocationRule(pat.name());
+            paymentAllocationOrder.setOrder(integer.getAndIncrement());
+            return paymentAllocationOrder;
+        }).toList();
+    }
+}