diff --git a/cmd/installer/pkg/install/manifest.go b/cmd/installer/pkg/install/manifest.go
index afa152ceec..945f9b0dfe 100644
--- a/cmd/installer/pkg/install/manifest.go
+++ b/cmd/installer/pkg/install/manifest.go
@@ -39,6 +39,8 @@ type Device struct {
 
 	ResetPartitionTable bool
 	Zero                bool
+
+	SkipOverlayMountsCheck bool
 }
 
 // NewManifest initializes and returns a Manifest.
@@ -95,6 +97,8 @@ func NewManifest(label string, sequence runtime.Sequence, bootPartitionFound boo
 
 		ResetPartitionTable: opts.Force,
 		Zero:                opts.Zero,
+
+		SkipOverlayMountsCheck: sequence == runtime.SequenceNoop,
 	}
 
 	// Initialize any slices we need. Note that a boot partition is not
@@ -170,6 +174,8 @@ func (m *Manifest) Execute() (err error) {
 }
 
 // checkMounts verifies that no active mounts in any mount namespace exist for the device.
+//
+//nolint:gocyclo
 func (m *Manifest) checkMounts(device Device) error {
 	matches, err := filepath.Glob("/proc/*/mountinfo")
 	if err != nil {
@@ -198,6 +204,22 @@ func (m *Manifest) checkMounts(device Device) error {
 					continue
 				}
 
+				if !device.SkipOverlayMountsCheck && fields[len(fields)-2] == "overlay" {
+					// parsing options (last column) in the overlay mount line which looks like:
+					// 163 70 0:52 /apid / ro,relatime - overlay overlay rw,lowerdir=/opt,upperdir=/var/system/overlays/opt-diff,workdir=/var/system/overlays/opt-workdir
+
+					options := strings.Split(fields[len(fields)-1], ",")
+
+					for _, option := range options {
+						parts := strings.SplitN(option, "=", 2)
+						if len(parts) == 2 {
+							if strings.HasPrefix(parts[1], "/var/") {
+								return fmt.Errorf("found overlay mount in %q: %s", path, scanner.Text())
+							}
+						}
+					}
+				}
+
 				if fields[len(fields)-2] == device.Device {
 					return fmt.Errorf("found active mount in %q for %q: %s", path, device.Device, scanner.Text())
 				}
diff --git a/cmd/installer/pkg/install/manifest_test.go b/cmd/installer/pkg/install/manifest_test.go
index 76855e5be7..026040f9db 100644
--- a/cmd/installer/pkg/install/manifest_test.go
+++ b/cmd/installer/pkg/install/manifest_test.go
@@ -233,6 +233,11 @@ func (suite *manifestSuite) TestExecuteManifestClean() {
 	})
 	suite.Require().NoError(err)
 
+	// in the tests overlay mounts should be ignored
+	dev := manifest.Devices[suite.loopbackDevice.Name()]
+	dev.SkipOverlayMountsCheck = true
+	manifest.Devices[suite.loopbackDevice.Name()] = dev
+
 	suite.Assert().NoError(manifest.Execute())
 
 	suite.verifyBlockdevice(manifest, "", "A", false, false)
@@ -249,6 +254,11 @@ func (suite *manifestSuite) TestExecuteManifestForce() {
 	})
 	suite.Require().NoError(err)
 
+	// in the tests overlay mounts should be ignored
+	dev := manifest.Devices[suite.loopbackDevice.Name()]
+	dev.SkipOverlayMountsCheck = true
+	manifest.Devices[suite.loopbackDevice.Name()] = dev
+
 	suite.Assert().NoError(manifest.Execute())
 
 	suite.verifyBlockdevice(manifest, "", "A", false, false)
@@ -264,6 +274,11 @@ func (suite *manifestSuite) TestExecuteManifestForce() {
 	})
 	suite.Require().NoError(err)
 
+	// in the tests overlay mounts should be ignored
+	dev = manifest.Devices[suite.loopbackDevice.Name()]
+	dev.SkipOverlayMountsCheck = true
+	manifest.Devices[suite.loopbackDevice.Name()] = dev
+
 	suite.Assert().NoError(manifest.Execute())
 
 	suite.verifyBlockdevice(manifest, "A", "B", true, false)
@@ -280,6 +295,11 @@ func (suite *manifestSuite) TestExecuteManifestPreserve() {
 	})
 	suite.Require().NoError(err)
 
+	// in the tests overlay mounts should be ignored
+	dev := manifest.Devices[suite.loopbackDevice.Name()]
+	dev.SkipOverlayMountsCheck = true
+	manifest.Devices[suite.loopbackDevice.Name()] = dev
+
 	suite.Assert().NoError(manifest.Execute())
 
 	suite.verifyBlockdevice(manifest, "", "A", false, false)
@@ -294,6 +314,11 @@ func (suite *manifestSuite) TestExecuteManifestPreserve() {
 	})
 	suite.Require().NoError(err)
 
+	// in the tests overlay mounts should be ignored
+	dev = manifest.Devices[suite.loopbackDevice.Name()]
+	dev.SkipOverlayMountsCheck = true
+	manifest.Devices[suite.loopbackDevice.Name()] = dev
+
 	suite.Assert().NoError(manifest.Execute())
 
 	suite.verifyBlockdevice(manifest, "A", "B", true, true)
diff --git a/internal/app/machined/pkg/runtime/v1alpha1/v1alpha1_sequencer_tasks.go b/internal/app/machined/pkg/runtime/v1alpha1/v1alpha1_sequencer_tasks.go
index 2840e9955b..148b6e169f 100644
--- a/internal/app/machined/pkg/runtime/v1alpha1/v1alpha1_sequencer_tasks.go
+++ b/internal/app/machined/pkg/runtime/v1alpha1/v1alpha1_sequencer_tasks.go
@@ -808,8 +808,9 @@ func partitionAndFormatDisks(logger *log.Logger, r runtime.Runtime) error {
 			}
 
 			m.Devices[disk.Device()] = installer.Device{
-				Device:              disk.Device(),
-				ResetPartitionTable: true,
+				Device:                 disk.Device(),
+				ResetPartitionTable:    true,
+				SkipOverlayMountsCheck: true,
 			}
 
 			for _, part := range disk.Partitions() {