diff --git a/api/v1alpha3/machinedeployment_webhook.go b/api/v1alpha3/machinedeployment_webhook.go
index 5ce67f553eb7..88fa1ef30e98 100644
--- a/api/v1alpha3/machinedeployment_webhook.go
+++ b/api/v1alpha3/machinedeployment_webhook.go
@@ -144,4 +144,7 @@ func PopulateDefaultsMachineDeployment(d *MachineDeployment) {
 		d.Spec.Selector.MatchLabels[MachineDeploymentLabelName] = d.Name
 		d.Spec.Template.Labels[MachineDeploymentLabelName] = d.Name
 	}
+	// Make sure selector and template to be in the same cluster.
+	d.Spec.Selector.MatchLabels[ClusterLabelName] = d.Spec.ClusterName
+	d.Spec.Template.Labels[ClusterLabelName] = d.Spec.ClusterName
 }
diff --git a/api/v1alpha3/machinedeployment_webhook_test.go b/api/v1alpha3/machinedeployment_webhook_test.go
index efb475e7eafe..1d7ac73ab2c9 100644
--- a/api/v1alpha3/machinedeployment_webhook_test.go
+++ b/api/v1alpha3/machinedeployment_webhook_test.go
@@ -111,3 +111,21 @@ func TestMachineDeploymentValidation(t *testing.T) {
 		})
 	}
 }
+
+func TestMachineDeploymentWithSpec(t *testing.T) {
+	g := NewWithT(t)
+	md := MachineDeployment{
+		Spec: MachineDeploymentSpec{
+			ClusterName: "test-cluster",
+			Template: MachineTemplateSpec{
+				Spec: MachineSpec{
+					ClusterName: "test-cluster",
+				},
+			},
+		},
+	}
+
+	md.Default()
+	g.Expect(md.Spec.Selector.MatchLabels).To(HaveKeyWithValue(ClusterLabelName, "test-cluster"))
+	g.Expect(md.Spec.Template.Labels).To(HaveKeyWithValue(ClusterLabelName, "test-cluster"))
+}
diff --git a/controllers/machinedeployment_controller.go b/controllers/machinedeployment_controller.go
index d318aa331768..7fe99f7ae52e 100644
--- a/controllers/machinedeployment_controller.go
+++ b/controllers/machinedeployment_controller.go
@@ -148,10 +148,6 @@ func (r *MachineDeploymentReconciler) reconcile(_ context.Context, cluster *clus
 
 	d.Labels[clusterv1.ClusterLabelName] = d.Spec.ClusterName
 
-	// Make sure selector and template to be in the same cluster.
-	d.Spec.Selector.MatchLabels[clusterv1.ClusterLabelName] = d.Spec.ClusterName
-	d.Spec.Template.Labels[clusterv1.ClusterLabelName] = d.Spec.ClusterName
-
 	if r.shouldAdopt(d) {
 		d.OwnerReferences = util.EnsureOwnerRef(d.OwnerReferences, metav1.OwnerReference{
 			APIVersion: clusterv1.GroupVersion.String(),