diff --git a/app/client/cypress/e2e/Regression/ServerSide/ApiTests/API_Bugs_Spec.js b/app/client/cypress/e2e/Regression/ServerSide/ApiTests/API_Bugs_Spec.js
index 419d4c56d2..02ac326a51 100644
--- a/app/client/cypress/e2e/Regression/ServerSide/ApiTests/API_Bugs_Spec.js
+++ b/app/client/cypress/e2e/Regression/ServerSide/ApiTests/API_Bugs_Spec.js
@@ -192,6 +192,20 @@ describe("Rest Bugs tests", function () {
     });
   });
 
+  // this test applies to other fields as well - params and body formdata
+  it("Bug 25817: Assert that header fields are correctly updated.", function () {
+    apiPage.CreateAndFillApi("https://postman-echo.com/gzip", "HeaderTest");
+    apiPage.EnterHeader("hello", "world", 0);
+    apiPage.EnterHeader("", "", 1);
+    agHelper.GetNClick(apiPage._addMoreHeaderFieldButton);
+    apiPage.EnterHeader("hey", "there", 2);
+
+    agHelper.RefreshPage();
+
+    apiPage.ValidateHeaderParams({ key: "hello", value: "world" }, 0);
+    apiPage.ValidateHeaderParams({ key: "hey", value: "there" }, 1);
+  });
+
   afterEach(() => {
     // put your clean up code if any
   });
diff --git a/app/client/cypress/support/Pages/ApiPage.ts b/app/client/cypress/support/Pages/ApiPage.ts
index dc156e0c35..8ea38936b6 100644
--- a/app/client/cypress/support/Pages/ApiPage.ts
+++ b/app/client/cypress/support/Pages/ApiPage.ts
@@ -76,6 +76,7 @@ export class ApiPage {
     `.t--auto-generated-${key}-info`;
   private _createQuery = ".t--create-query";
   public _editorDS = ".t--datasource-editor";
+  public _addMoreHeaderFieldButton = ".t--addApiHeader";
 
   CreateApi(
     apiName = "",
@@ -291,10 +292,13 @@ export class ApiPage {
     this.agHelper.ValidateCodeEditorContent(this._paramValue(0), param.value);
   }
 
-  ValidateHeaderParams(header: { key: string; value: string }) {
+  ValidateHeaderParams(header: { key: string; value: string }, index = 0) {
     this.SelectPaneTab("Headers");
-    this.agHelper.ValidateCodeEditorContent(this._headerKey(0), header.key);
-    this.agHelper.ValidateCodeEditorContent(this._headerValue(0), header.value);
+    this.agHelper.ValidateCodeEditorContent(this._headerKey(index), header.key);
+    this.agHelper.ValidateCodeEditorContent(
+      this._headerValue(index),
+      header.value,
+    );
   }
 
   ValidateImportedHeaderParams(
diff --git a/app/client/src/sagas/ActionSagas.ts b/app/client/src/sagas/ActionSagas.ts
index efac9788b3..6e12dd3f1b 100644
--- a/app/client/src/sagas/ActionSagas.ts
+++ b/app/client/src/sagas/ActionSagas.ts
@@ -50,6 +50,7 @@ import AnalyticsUtil from "utils/AnalyticsUtil";
 import type {
   Action,
   ActionViewMode,
+  ApiAction,
   ApiActionConfig,
   SlashCommandPayload,
 } from "entities/Action";
@@ -89,7 +90,7 @@ import {
   ERROR_ACTION_MOVE_FAIL,
   ERROR_ACTION_RENAME_FAIL,
 } from "@appsmith/constants/messages";
-import { get, merge } from "lodash";
+import { get, isEmpty, merge } from "lodash";
 import {
   fixActionPayloadForMongoQuery,
   getConfigInitialValues,
@@ -404,19 +405,39 @@ export function* fetchActionsForPageSaga(
   }
 }
 
-export function* updateActionSaga(
-  actionPayload: ReduxAction<{ id: string; action?: Action }>,
-) {
+export function* updateActionSaga(actionPayload: ReduxAction<{ id: string }>) {
   try {
     PerformanceTracker.startAsyncTracking(
       PerformanceTransactionName.UPDATE_ACTION_API,
       { actionid: actionPayload.payload.id },
     );
-    let action = actionPayload.payload.action;
-    if (!action) action = yield select(getAction, actionPayload.payload.id);
+
+    let action: Action = yield select(getAction, actionPayload.payload.id);
     if (!action) throw new Error("Could not find action to update");
 
     if (isAPIAction(action)) {
+      // get api action object from redux form
+      const reduxFormApiAction: ApiAction = yield select(
+        getFormValues(API_EDITOR_FORM_NAME),
+      );
+
+      // run transformation on redux form action's headers, bodyformData and queryParameters.
+      // the reason we do this is because the transformation should only be done on the raw action data from the redux form.
+      // However sometimes when we attempt to save an API as a datasource, we update the Apiaction with the datasource information and the redux form data will not be available i.e. reduxFormApiAction = undefined
+      // In this scenario we can just default to the action object - (skip the if block below).
+      if (!isEmpty(reduxFormApiAction)) {
+        action = {
+          ...action,
+          actionConfiguration: {
+            ...action.actionConfiguration,
+            headers: reduxFormApiAction.actionConfiguration.headers,
+            bodyFormData: reduxFormApiAction.actionConfiguration.bodyFormData,
+            queryParameters:
+              reduxFormApiAction.actionConfiguration.queryParameters,
+          },
+        };
+      }
+
       action = transformRestAction(action);
     }
 
@@ -426,10 +447,7 @@ export function* updateActionSaga(
       // @ts-expect-error: Types are not available
       action = fixActionPayloadForMongoQuery(action);
     }
-    const response: ApiResponse<Action> = yield ActionAPI.updateAction(
-      // @ts-expect-error: Types are not available
-      action,
-    );
+    const response: ApiResponse<Action> = yield ActionAPI.updateAction(action);
 
     const isValidResponse: boolean = yield validateResponse(response);
     if (isValidResponse) {