diff --git a/doc/whats-new.rst b/doc/whats-new.rst
index 5d0c30a1c2f..5cfec4189b1 100644
--- a/doc/whats-new.rst
+++ b/doc/whats-new.rst
@@ -72,6 +72,9 @@ Bug fixes
 - Fix to once again support date offset strings as input to the loffset
   parameter of resample and test this functionality (:pull:`8422`, :issue:`8399`).
   By `Katelyn FitzGerald <https://github.com/kafitzgerald>`_.
+- Fix a bug where :py:meth:`DataArray.to_dataset` silently drops a variable
+  if a coordinate with the same name already exists (:pull:`8433`, :issue:`7823`).
+  By `András Gunyhó <https://github.com/mgunyho>`_.
 
 Documentation
 ~~~~~~~~~~~~~
diff --git a/xarray/core/dataarray.py b/xarray/core/dataarray.py
index 262fc407b6d..5e6feb8eda4 100644
--- a/xarray/core/dataarray.py
+++ b/xarray/core/dataarray.py
@@ -574,9 +574,24 @@ def subset(dim, label):
             array.attrs = {}
             return as_variable(array)
 
-        variables = {label: subset(dim, label) for label in self.get_index(dim)}
-        variables.update({k: v for k, v in self._coords.items() if k != dim})
+        variables_from_split = {
+            label: subset(dim, label) for label in self.get_index(dim)
+        }
         coord_names = set(self._coords) - {dim}
+
+        ambiguous_vars = set(variables_from_split) & coord_names
+        if ambiguous_vars:
+            rename_msg_fmt = ", ".join([f"{v}=..." for v in sorted(ambiguous_vars)])
+            raise ValueError(
+                f"Splitting along the dimension {dim!r} would produce the variables "
+                f"{tuple(sorted(ambiguous_vars))} which are also existing coordinate "
+                f"variables. Use DataArray.rename({rename_msg_fmt}) or "
+                f"DataArray.assign_coords({dim}=...) to resolve this ambiguity."
+            )
+
+        variables = variables_from_split | {
+            k: v for k, v in self._coords.items() if k != dim
+        }
         indexes = filter_indexes_from_coords(self._indexes, coord_names)
         dataset = Dataset._construct_direct(
             variables, coord_names, indexes=indexes, attrs=self.attrs
diff --git a/xarray/tests/test_dataarray.py b/xarray/tests/test_dataarray.py
index 0612f0a6ac6..44b9790f0b7 100644
--- a/xarray/tests/test_dataarray.py
+++ b/xarray/tests/test_dataarray.py
@@ -3686,8 +3686,16 @@ def test_to_dataset_whole(self) -> None:
             actual = named.to_dataset("bar")
 
     def test_to_dataset_split(self) -> None:
-        array = DataArray([1, 2, 3], coords=[("x", list("abc"))], attrs={"a": 1})
-        expected = Dataset({"a": 1, "b": 2, "c": 3}, attrs={"a": 1})
+        array = DataArray(
+            [[1, 2], [3, 4], [5, 6]],
+            coords=[("x", list("abc")), ("y", [0.0, 0.1])],
+            attrs={"a": 1},
+        )
+        expected = Dataset(
+            {"a": ("y", [1, 2]), "b": ("y", [3, 4]), "c": ("y", [5, 6])},
+            coords={"y": [0.0, 0.1]},
+            attrs={"a": 1},
+        )
         actual = array.to_dataset("x")
         assert_identical(expected, actual)
 
@@ -3715,6 +3723,51 @@ def test_to_dataset_retains_keys(self) -> None:
 
         assert_equal(array, result)
 
+    def test_to_dataset_coord_value_is_dim(self) -> None:
+        # github issue #7823
+
+        array = DataArray(
+            np.zeros((3, 3)),
+            coords={
+                # 'a' is both a coordinate value and the name of a coordinate
+                "x": ["a", "b", "c"],
+                "a": [1, 2, 3],
+            },
+        )
+
+        with pytest.raises(
+            ValueError,
+            match=(
+                re.escape("dimension 'x' would produce the variables ('a',)")
+                + ".*"
+                + re.escape("DataArray.rename(a=...) or DataArray.assign_coords(x=...)")
+            ),
+        ):
+            array.to_dataset("x")
+
+        # test error message formatting when there are multiple ambiguous
+        # values/coordinates
+        array2 = DataArray(
+            np.zeros((3, 3, 2)),
+            coords={
+                "x": ["a", "b", "c"],
+                "a": [1, 2, 3],
+                "b": [0.0, 0.1],
+            },
+        )
+
+        with pytest.raises(
+            ValueError,
+            match=(
+                re.escape("dimension 'x' would produce the variables ('a', 'b')")
+                + ".*"
+                + re.escape(
+                    "DataArray.rename(a=..., b=...) or DataArray.assign_coords(x=...)"
+                )
+            ),
+        ):
+            array2.to_dataset("x")
+
     def test__title_for_slice(self) -> None:
         array = DataArray(
             np.ones((4, 3, 2)),