diff --git a/src/extensions/__tests__/extension-compatibility.test.ts b/src/extensions/__tests__/extension-compatibility.test.ts
index 6bcac675019b..6a3dc0265d8a 100644
--- a/src/extensions/__tests__/extension-compatibility.test.ts
+++ b/src/extensions/__tests__/extension-compatibility.test.ts
@@ -19,29 +19,24 @@
  * CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE.
  */
 
-import { isCompatibleExtension } from "../extension-compatibility";
+import { rawIsCompatibleExtension } from "../extension-compatibility";
 import { Console } from "console";
 import { stdout, stderr } from "process";
 import type { LensExtensionManifest } from "../lens-extension";
-import { appSemVer } from "../../common/vars";
+import { SemVer } from "semver";
 
 console = new Console(stdout, stderr);
 
 describe("extension compatibility", () => {
   describe("appSemVer with no prerelease tag", () => {
-    beforeAll(() => {
-      appSemVer.major = 5;
-      appSemVer.minor = 0;
-      appSemVer.patch = 3;
-      appSemVer.prerelease = [];
-    });
+    const isCompatibleExtension = rawIsCompatibleExtension(new SemVer("5.0.3"));
 
     it("has no extension comparator", () => {
       const manifest = { name: "extensionName", version: "0.0.1" };
 
       expect(isCompatibleExtension(manifest)).toBe(false);
     });
-    
+
     it.each([
       {
         comparator: "",
@@ -83,19 +78,32 @@ describe("extension compatibility", () => {
   });
 
   describe("appSemVer with prerelease tag", () => {
-    beforeAll(() => {
-      appSemVer.major = 5;
-      appSemVer.minor = 0;
-      appSemVer.patch = 3;
-      appSemVer.prerelease = ["beta", 3];
+    const isCompatibleExtension = rawIsCompatibleExtension(new SemVer("5.0.3-beta.3"));
+
+    it("^5.1.0 should work when lens' version is 5.1.0-latest.123456789", () => {
+      const comparer = rawIsCompatibleExtension(new SemVer("5.1.0-latest.123456789"));
+
+      expect(comparer({ name: "extensionName", version: "0.0.1", engines: { lens: "^5.1.0" }})).toBe(true);
     });
-    
+
+    it("^5.1.0 should not when lens' version is 5.1.0-beta.1.123456789", () => {
+      const comparer = rawIsCompatibleExtension(new SemVer("5.1.0-beta.123456789"));
+
+      expect(comparer({ name: "extensionName", version: "0.0.1", engines: { lens: "^5.1.0" }})).toBe(false);
+    });
+
+    it("^5.1.0 should not when lens' version is 5.1.0-alpha.1.123456789", () => {
+      const comparer = rawIsCompatibleExtension(new SemVer("5.1.0-alpha.123456789"));
+
+      expect(comparer({ name: "extensionName", version: "0.0.1", engines: { lens: "^5.1.0" }})).toBe(false);
+    });
+
     it("has no extension comparator", () => {
       const manifest = { name: "extensionName", version: "0.0.1" };
 
       expect(isCompatibleExtension(manifest)).toBe(false);
     });
-    
+
     it.each([
       {
         comparator: "",
@@ -130,9 +138,7 @@ describe("extension compatibility", () => {
         expected: false,
       },
     ])("extension comparator test: %p", ({ comparator, expected }) => {
-      const manifest: LensExtensionManifest = { name: "extensionName", version: "0.0.1", engines: { lens: comparator }};
-
-      expect(isCompatibleExtension(manifest)).toBe(expected);
+      expect(isCompatibleExtension({ name: "extensionName", version: "0.0.1", engines: { lens: comparator }})).toBe(expected);
     });
   });
 });
diff --git a/src/extensions/extension-compatibility.ts b/src/extensions/extension-compatibility.ts
index 3d958072dca8..ba5dcf2e1a31 100644
--- a/src/extensions/extension-compatibility.ts
+++ b/src/extensions/extension-compatibility.ts
@@ -19,19 +19,47 @@
  * CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS IN THE SOFTWARE.
  */
 
-import semver from "semver";
+import semver, { SemVer } from "semver";
 import { appSemVer, isProduction } from "../common/vars";
 import type { LensExtensionManifest } from "./lens-extension";
 
-export function isCompatibleExtension(manifest: LensExtensionManifest): boolean {
-  if (manifest.engines?.lens) {
-    /* include Lens's prerelease tag in the matching so the extension's compatibility is not limited by it */
-    return semver.satisfies(appSemVer, manifest.engines.lens, { includePrerelease: true });
+export function rawIsCompatibleExtension(version: SemVer): (manifest: LensExtensionManifest) => boolean {
+  const { major, minor, patch, prerelease: oldPrelease } = version;
+  let prerelease = "";
+
+  if (oldPrelease.length > 0) {
+    const [first] = oldPrelease;
+
+    if (first === "alpha" || first === "beta" || first === "rc") {
+      /**
+       * Strip the build IDs and "latest" prerelease tag as that is not really
+       * a part of API version
+       */
+      prerelease = `-${oldPrelease.slice(0, 2).join(".")}`;
+    }
   }
 
-  return false;
+  /**
+   * We unfortunately have to format as string because the constructor only
+   * takes an instance or a string.
+   */
+  const strippedVersion = new SemVer(`${major}.${minor}.${patch}${prerelease}`, { includePrerelease: true });
+
+  return (manifest: LensExtensionManifest): boolean => {
+    if (manifest.engines?.lens) {
+      /**
+       * include Lens's prerelease tag in the matching so the extension's
+       * compatibility is not limited by it
+       */
+      return semver.satisfies(strippedVersion, manifest.engines.lens, { includePrerelease: true });
+    }
+
+    return false;
+  };
 }
 
+export const isCompatibleExtension = rawIsCompatibleExtension(appSemVer);
+
 export function isCompatibleBundledExtension(manifest: LensExtensionManifest): boolean {
   return !isProduction || manifest.version === appSemVer.raw;
 }