diff --git a/util/argo/diff/diff_test.go b/util/argo/diff/diff_test.go
index 2c95d7404d299..b1bfe277416a9 100644
--- a/util/argo/diff/diff_test.go
+++ b/util/argo/diff/diff_test.go
@@ -1,6 +1,8 @@
 package diff_test
 
 import (
+	"github.com/argoproj/argo-cd/v2/common"
+	argo2 "github.com/argoproj/argo-cd/v2/util/argo"
 	"testing"
 
 	"github.com/stretchr/testify/assert"
@@ -154,6 +156,23 @@ func TestStateDiff(t *testing.T) {
 			assert.Equal(t, float64(tc.expectedPredictedReplicas), predictedReplicas)
 		})
 	}
+
+	t.Run("will find diff while moving from label tracking to annotation+label", func(t *testing.T) {
+		// given
+		params := defaultDiffConfigParams()
+		params.trackingMethod = string(argo2.TrackingMethodAnnotationAndLabel)
+		params.label = common.LabelKeyAppInstance
+		dc := diffConfig(t, params)
+
+		// when
+		result, err := argo.StateDiff(testutil.YamlToUnstructured(testdata.LiveAppWithOldLabelTrackingYaml), testutil.YamlToUnstructured(testdata.DesiredAppMixedTrackingYaml), dc)
+
+		// then
+		assert.NoError(t, err)
+		assert.NotNil(t, result)
+		assert.True(t, result.Modified)
+	})
+
 }
 func TestDiffConfigBuilder(t *testing.T) {
 	type fixture struct {
diff --git a/util/argo/resource_tracking.go b/util/argo/resource_tracking.go
index 7e7e0be50dd69..6817971a4860e 100644
--- a/util/argo/resource_tracking.go
+++ b/util/argo/resource_tracking.go
@@ -204,6 +204,12 @@ func (rt *resourceTracking) Normalize(config, live *unstructured.Unstructured, l
 		return nil
 	}
 
+	liveInstanceAnnotation, err := argokube.GetAppInstanceAnnotation(live, common.AnnotationKeyAppInstance)
+
+	if err == nil && liveInstanceAnnotation == "" && trackingMethod != string(TrackingMethodLabel) {
+		return nil
+	}
+
 	annotation, err := argokube.GetAppInstanceAnnotation(config, common.AnnotationKeyAppInstance)
 	if err != nil {
 		return err
diff --git a/util/argo/testdata/data.go b/util/argo/testdata/data.go
index f3aa78f6e6e34..0ca852a1897fa 100644
--- a/util/argo/testdata/data.go
+++ b/util/argo/testdata/data.go
@@ -14,4 +14,10 @@ var (
 
 	//go:embed desired_validating_webhook.yaml
 	DesiredValidatingWebhookYaml string
+
+	//go:embed live_app_with_old_label_tracking.yaml
+	LiveAppWithOldLabelTrackingYaml string
+
+	//go:embed desired_app_mixed_tracking.yaml
+	DesiredAppMixedTrackingYaml string
 )
diff --git a/util/argo/testdata/desired_app_mixed_tracking.yaml b/util/argo/testdata/desired_app_mixed_tracking.yaml
new file mode 100644
index 0000000000000..e2fa4cca5544d
--- /dev/null
+++ b/util/argo/testdata/desired_app_mixed_tracking.yaml
@@ -0,0 +1,26 @@
+apiVersion: argoproj.io/v1alpha1
+kind: Application
+metadata:
+  annotations:
+    argocd.argoproj.io/tracking-id: 'parent:argoproj.io/Application:argo/child'
+    some-annotation: 'some'
+  labels:
+    app.kubernetes.io/instance: parent
+  name: child
+  namespace: argo
+spec:
+  destination:
+    name: in-cluster
+    namespace: argo
+  project: default
+  source:
+    path: empty
+    repoURL: 'https://github.com/argoproj/argocd-example-apps'
+    targetRevision: main
+  syncPolicy:
+    automated:
+      allowEmpty: true
+      prune: true
+      selfHeal: false
+    syncOptions:
+      - CreateNamespace=true
diff --git a/util/argo/testdata/live_app_with_old_label_tracking.yaml b/util/argo/testdata/live_app_with_old_label_tracking.yaml
new file mode 100644
index 0000000000000..40be90003e11b
--- /dev/null
+++ b/util/argo/testdata/live_app_with_old_label_tracking.yaml
@@ -0,0 +1,25 @@
+apiVersion: argoproj.io/v1alpha1
+kind: Application
+metadata:
+  annotations:
+    some-annotation: 'some'
+  labels:
+    app.kubernetes.io/instance: parent
+  name: child
+  namespace: argo
+spec:
+  destination:
+    name: in-cluster
+    namespace: argo
+  project: default
+  source:
+    path: empty
+    repoURL: 'https://github.com/argoproj/argocd-example-apps'
+    targetRevision: main
+  syncPolicy:
+    automated:
+      allowEmpty: true
+      prune: true
+      selfHeal: false
+    syncOptions:
+      - CreateNamespace=true