diff --git a/.changeset/chilly-trains-study.md b/.changeset/chilly-trains-study.md
new file mode 100644
index 0000000000..1e9e8381b8
--- /dev/null
+++ b/.changeset/chilly-trains-study.md
@@ -0,0 +1,5 @@
+---
+"app-builder-lib": patch
+---
+
+fix(nsis): use revertible rmdir on update
diff --git a/packages/app-builder-lib/templates/nsis/include/extractAppPackage.nsh b/packages/app-builder-lib/templates/nsis/include/extractAppPackage.nsh
index dff19261c0..d96a655493 100644
--- a/packages/app-builder-lib/templates/nsis/include/extractAppPackage.nsh
+++ b/packages/app-builder-lib/templates/nsis/include/extractAppPackage.nsh
@@ -104,28 +104,24 @@
   LoopExtract7za:
     IntOp $R1 $R1 + 1
 
+    # Attempt to copy files in atomic way
     CopyFiles /SILENT "$PLUGINSDIR\7z-out\*" $OUTDIR
     IfErrors 0 DoneExtract7za
 
-    ${if} $R1 > 1
-      DetailPrint `Can't modify "${PRODUCT_NAME}"'s files.`
-      ${if} $R1 < 5
-        # Try copying a few times before giving up
-        Goto LoopExtract7za
-      ${else}
-        MessageBox MB_RETRYCANCEL|MB_ICONEXCLAMATION "$(appCannotBeClosed)" /SD IDCANCEL IDRETRY RetryExtract7za
-      ${endIf}
-
-      # CopyFiles will remove all overwritten files when it encounters an
-      # issue and make app non-launchable. Extract over from the archive
-      # ignoring the failures so at least we will partially update and the
-      # app would start.
-      Nsis7z::Extract "${FILE}"
-      Quit
+    DetailPrint `Can't modify "${PRODUCT_NAME}"'s files.`
+    ${if} $R1 < 5
+      # Try copying a few times before asking for a user action.
+      Goto RetryExtract7za
     ${else}
-      Goto LoopExtract7za
+      MessageBox MB_RETRYCANCEL|MB_ICONEXCLAMATION "$(appCannotBeClosed)" /SD IDCANCEL IDRETRY RetryExtract7za
     ${endIf}
 
+    # As an absolutely last resort after a few automatic attempts and user
+    # intervention - we will just overwrite everything with `Nsis7z::Extract`
+    # even though it is not atomic and will ignore errors.
+    Nsis7z::Extract "${FILE}"
+    Quit
+
   RetryExtract7za:
     Sleep 1000
     Goto LoopExtract7za
diff --git a/packages/app-builder-lib/templates/nsis/include/installUtil.nsh b/packages/app-builder-lib/templates/nsis/include/installUtil.nsh
index 0d6f2938fd..4736774163 100644
--- a/packages/app-builder-lib/templates/nsis/include/installUtil.nsh
+++ b/packages/app-builder-lib/templates/nsis/include/installUtil.nsh
@@ -126,7 +126,10 @@ Function handleUninstallResult
   Return
 
   ${if} $R0 != 0
+    MessageBox MB_OK|MB_ICONEXCLAMATION "$(uninstallFailed): $R0"
     DetailPrint `Uninstall was not successful. Uninstaller error code: $R0.`
+    SetErrorLevel 2
+    Quit
   ${endif}
 FunctionEnd
 
@@ -156,7 +159,7 @@ Function uninstallOldVersion
     !endif
     ${if} $uninstallString == ""
       ClearErrors
-      Goto Done
+      Return
     ${endif}
   ${endif}
 
@@ -175,7 +178,7 @@ Function uninstallOldVersion
   ${if} $installationDir == ""
   ${andIf} $uninstallerFileName == ""
     ClearErrors
-    Goto Done
+    Return
   ${endif}
 
   ${if} $installMode == "CurrentUser"
@@ -206,12 +209,37 @@ Function uninstallOldVersion
   StrCpy $uninstallerFileNameTemp "$PLUGINSDIR\old-uninstaller.exe"
   !insertmacro copyFile "$uninstallerFileName" "$uninstallerFileNameTemp"
 
-  ExecWait '"$uninstallerFileNameTemp" /S /KEEP_APP_DATA $0 _?=$installationDir' $R0
-  ifErrors 0 Done
-    # the execution failed - might have been caused by some group policy restrictions
-    # we try to execute the uninstaller in place
-    ExecWait '"$uninstallerFileName" /S /KEEP_APP_DATA $0 _?=$installationDir' $R0
-  Done:
+  # Retry counter
+  StrCpy $R5 0
+
+  UninstallLoop:
+    IntOp $R5 $R5 + 1
+
+    ${if} $R5 > 5
+      MessageBox MB_RETRYCANCEL|MB_ICONEXCLAMATION "$(appCannotBeClosed)" /SD IDCANCEL IDRETRY OneMoreAttempt
+      Return
+    ${endIf}
+
+  OneMoreAttempt:
+    ExecWait '"$uninstallerFileNameTemp" /S /KEEP_APP_DATA $0 _?=$installationDir' $R0
+    ifErrors TryInPlace CheckResult
+
+    TryInPlace:
+      # the execution failed - might have been caused by some group policy restrictions
+      # we try to execute the uninstaller in place
+      ExecWait '"$uninstallerFileName" /S /KEEP_APP_DATA $0 _?=$installationDir' $R0
+      ifErrors DoesNotExist
+
+    CheckResult:
+      ${if} $R0 == 0
+        Return
+      ${endIf}
+
+    Sleep 1000
+    Goto UninstallLoop
+
+  DoesNotExist:
+    SetErrors
 FunctionEnd
 
 !macro uninstallOldVersion ROOT_KEY
diff --git a/packages/app-builder-lib/templates/nsis/messages.yml b/packages/app-builder-lib/templates/nsis/messages.yml
index ce95e3f138..6527c99cc6 100644
--- a/packages/app-builder-lib/templates/nsis/messages.yml
+++ b/packages/app-builder-lib/templates/nsis/messages.yml
@@ -144,3 +144,5 @@ areYouSureToUninstall:
   da: Er du sikker på, at du vil afinstallere ${PRODUCT_NAME}?
 decompressionFailed:
   en: Failed to decompress files. Please try running the installer again.
+uninstallFailed:
+  en: Failed to uninstall old application files. Please try running the installer again.
diff --git a/packages/app-builder-lib/templates/nsis/uninstaller.nsh b/packages/app-builder-lib/templates/nsis/uninstaller.nsh
index 8db1f9acc2..d400ec452d 100644
--- a/packages/app-builder-lib/templates/nsis/uninstaller.nsh
+++ b/packages/app-builder-lib/templates/nsis/uninstaller.nsh
@@ -28,6 +28,109 @@ Function un.onInit
   !endif
 FunctionEnd
 
+Function un.atomicRMDir
+  Exch $R0
+  Push $R1
+  Push $R2
+  Push $R3
+
+  StrCpy $R3 "$INSTDIR$R0\*.*"
+  FindFirst $R1 $R2 $R3
+
+  loop:
+    StrCmp $R2 "" break
+
+    StrCmp $R2 "." continue
+    StrCmp $R2 ".." continue
+
+    IfFileExists "$INSTDIR$R0\$R2\*.*" isDir isNotDir
+
+    isDir:
+      CreateDirectory "$PLUGINSDIR\old-install$R0\$R2"
+
+      Push "$R0\$R2"
+      Call un.atomicRMDir
+      Pop $R3
+
+      ${if} $R3 != 0
+        Goto done
+      ${endIf}
+
+      Goto continue
+
+    isNotDir:
+      ClearErrors
+      Rename "$INSTDIR$R0\$R2" "$PLUGINSDIR\old-install$R0\$R2"
+
+      # Ignore errors when renaming ourselves.
+      StrCmp "$R0\$R2" "${UNINSTALL_FILENAME}" 0 +2
+      ClearErrors
+
+      IfErrors 0 +3
+      StrCpy $R3 "$INSTDIR$R0\$R2"
+      Goto done
+
+    continue:
+      FindNext $R1 $R2
+      Goto loop
+
+  break:
+    StrCpy $R3 0
+
+  done:
+    FindClose $R1
+
+    StrCpy $R0 $R3
+
+    Pop $R3
+    Pop $R2
+    Pop $R1
+    Exch $R0
+FunctionEnd
+
+Function un.restoreFiles
+  Exch $R0
+  Push $R1
+  Push $R2
+  Push $R3
+
+  StrCpy $R3 "$PLUGINSDIR\old-install$R0\*.*"
+  FindFirst $R1 $R2 $R3
+
+  loop:
+    StrCmp $R2 "" break
+
+    StrCmp $R2 "." continue
+    StrCmp $R2 ".." continue
+
+    IfFileExists "$INSTDIR$R0\$R2\*.*" isDir isNotDir
+
+    isDir:
+      CreateDirectory "$INSTDIR$R0\$R2"
+
+      Push "$R0\$R2"
+      Call un.restoreFiles
+      Pop $R3
+
+      Goto continue
+
+    isNotDir:
+      Rename $PLUGINSDIR\old-install$R0\$R2" "$INSTDIR$R0\$R2"
+
+    continue:
+      FindNext $R1 $R2
+      Goto loop
+
+  break:
+    StrCpy $R0 0
+    FindClose $R1
+
+    Pop $R3
+    Pop $R2
+    Pop $R1
+    Exch $R0
+FunctionEnd
+
 Section "un.install"
   # for assisted installer we check it here to show progress
   !ifndef ONE_CLICK
@@ -38,6 +141,34 @@ Section "un.install"
 
   !insertmacro setLinkVars
 
+  # delete the installed files
+  !ifmacrodef customRemoveFiles
+    !insertmacro customRemoveFiles
+  !else
+    ${if} ${isUpdated}
+      CreateDirectory "$PLUGINSDIR\old-install"
+
+      Push ""
+      Call un.atomicRMDir
+      Pop $R0
+
+      ${if} $R0 != 0
+        DetailPrint "File is busy, aborting: $R0"
+
+        # Attempt to restore previous directory
+        Push ""
+        Call un.restoreFiles
+        Pop $R0
+
+        Abort `Can't rename "$INSTDIR" to "$PLUGINSDIR\old-install".`
+      ${endif}
+
+    ${endif}
+
+    # Remove all files (or remaining shallow directories from the block above)
+    RMDir /r $INSTDIR
+  !endif
+
   ${ifNot} ${isKeepShortcuts}
     WinShell::UninstAppUserModelId "${APP_ID}"
 
@@ -64,13 +195,6 @@ Section "un.install"
     !insertmacro unregisterFileAssociations
   !endif
 
-  # delete the installed files
-  !ifmacrodef customRemoveFiles
-    !insertmacro customRemoveFiles
-  !else
-    RMDir /r $INSTDIR
-  !endif
-
   Var /GLOBAL isDeleteAppData
   StrCpy $isDeleteAppData "0"