diff --git a/src/zenml/artifacts/utils.py b/src/zenml/artifacts/utils.py
index 6ec3403c2a..41d7e1ce0a 100644
--- a/src/zenml/artifacts/utils.py
+++ b/src/zenml/artifacts/utils.py
@@ -189,6 +189,10 @@ def save_artifact(
     # Get or create the artifact
     try:
         artifact = client.list_artifacts(name=name)[0]
+        if artifact.has_custom_name != has_custom_name:
+            client.update_artifact(
+                name_id_or_prefix=artifact.id, has_custom_name=has_custom_name
+            )
     except IndexError:
         artifact = client.zen_store.create_artifact(
             ArtifactRequest(
diff --git a/src/zenml/client.py b/src/zenml/client.py
index ef5d9e3a81..9830fc25a7 100644
--- a/src/zenml/client.py
+++ b/src/zenml/client.py
@@ -2761,6 +2761,7 @@ def update_artifact(
         new_name: Optional[str] = None,
         add_tags: Optional[List[str]] = None,
         remove_tags: Optional[List[str]] = None,
+        has_custom_name: Optional[bool] = None,
     ) -> ArtifactResponse:
         """Update an artifact.
 
@@ -2769,6 +2770,7 @@ def update_artifact(
             new_name: The new name of the artifact.
             add_tags: Tags to add to the artifact.
             remove_tags: Tags to remove from the artifact.
+            has_custom_name: Whether the artifact has a custom name.
 
         Returns:
             The updated artifact.
@@ -2778,6 +2780,7 @@ def update_artifact(
             name=new_name,
             add_tags=add_tags,
             remove_tags=remove_tags,
+            has_custom_name=has_custom_name,
         )
         return self.zen_store.update_artifact(
             artifact_id=artifact.id, artifact_update=artifact_update
diff --git a/src/zenml/models/v2/core/artifact.py b/src/zenml/models/v2/core/artifact.py
index 3938dbff1f..8fb548924d 100644
--- a/src/zenml/models/v2/core/artifact.py
+++ b/src/zenml/models/v2/core/artifact.py
@@ -60,6 +60,7 @@ class ArtifactUpdate(BaseModel):
     name: Optional[str] = None
     add_tags: Optional[List[str]] = None
     remove_tags: Optional[List[str]] = None
+    has_custom_name: Optional[bool] = None
 
 
 # ------------------ Response Model ------------------
diff --git a/src/zenml/orchestrators/output_utils.py b/src/zenml/orchestrators/output_utils.py
index 0bf5385cf6..21f8b74ccb 100644
--- a/src/zenml/orchestrators/output_utils.py
+++ b/src/zenml/orchestrators/output_utils.py
@@ -15,6 +15,7 @@
 
 import os
 from typing import TYPE_CHECKING, Dict, Sequence
+from uuid import uuid4
 
 from zenml.io import fileio
 from zenml.logger import get_logger
@@ -44,11 +45,14 @@ def generate_artifact_uri(
     Returns:
         The URI of the output artifact.
     """
+    for banned_character in ["<", ">", ":", '"', "/", "\\", "|", "?", "*"]:
+        output_name = output_name.replace(banned_character, "_")
     return os.path.join(
         artifact_store.path,
         step_run.name,
         output_name,
         str(step_run.id),
+        str(uuid4())[:8],  # add random subfolder to avoid collisions
     )
 
 
diff --git a/src/zenml/zen_stores/schemas/artifact_schemas.py b/src/zenml/zen_stores/schemas/artifact_schemas.py
index a7a60574bd..93a1a81394 100644
--- a/src/zenml/zen_stores/schemas/artifact_schemas.py
+++ b/src/zenml/zen_stores/schemas/artifact_schemas.py
@@ -143,6 +143,8 @@ def update(self, artifact_update: ArtifactUpdate) -> "ArtifactSchema":
         if artifact_update.name:
             self.name = artifact_update.name
             self.has_custom_name = True
+        if artifact_update.has_custom_name is not None:
+            self.has_custom_name = artifact_update.has_custom_name
         return self
 
 
diff --git a/tests/integration/functional/artifacts/test_artifact_config.py b/tests/integration/functional/artifacts/test_artifact_config.py
index 5d018e9ad5..68990ab768 100644
--- a/tests/integration/functional/artifacts/test_artifact_config.py
+++ b/tests/integration/functional/artifacts/test_artifact_config.py
@@ -442,3 +442,39 @@ def _inner_pipeline(force_disable_cache: bool = False):
         assert (
             len(mvrm.data_artifact_ids["cacheable"]) == 1
         ), f"Failed on {i} run"
+
+
+@step
+def standard_name_producer() -> str:
+    return "standard"
+
+
+@step
+def custom_name_producer() -> (
+    Annotated[str, "pipeline_::standard_name_producer::output"]
+):
+    return "custom"
+
+
+def test_update_of_has_custom_name(clean_client: "Client"):
+    """Test that update of has_custom_name works."""
+
+    @pipeline(enable_cache=False)
+    def pipeline_():
+        standard_name_producer()
+
+    @pipeline(enable_cache=False)
+    def pipeline_2():
+        custom_name_producer()
+
+    # run 2 times to see both ways switching
+    for i in range(2):
+        pipeline_()
+        assert not clean_client.get_artifact(
+            "pipeline_::standard_name_producer::output"
+        ).has_custom_name, f"Standard name validation failed in {i+1} run"
+
+        pipeline_2()
+        assert clean_client.get_artifact(
+            "pipeline_::standard_name_producer::output"
+        ).has_custom_name, f"Custom name validation failed in {i+1} run"
diff --git a/tests/unit/orchestrators/test_output_utils.py b/tests/unit/orchestrators/test_output_utils.py
index e63c4d4607..6bb4d12d48 100644
--- a/tests/unit/orchestrators/test_output_utils.py
+++ b/tests/unit/orchestrators/test_output_utils.py
@@ -14,8 +14,6 @@
 
 import os
 
-import pytest
-
 from zenml.config.step_configurations import Step
 from zenml.orchestrators import output_utils
 
@@ -41,11 +39,9 @@ def test_output_artifact_preparation(create_step_run, local_stack):
         "output_name",
         str(step_run.id),
     )
+    output_artifact_uris["output_name"] = os.path.split(
+        output_artifact_uris["output_name"]
+    )[0]
+
     assert output_artifact_uris == {"output_name": expected_path}
     assert os.path.isdir(expected_path)
-
-    # artifact directory already exists
-    with pytest.raises(RuntimeError):
-        output_utils.prepare_output_artifact_uris(
-            step_run=step_run, stack=local_stack, step=step
-        )