diff --git a/app/client/src/sagas/DatasourcesSagas.ts b/app/client/src/sagas/DatasourcesSagas.ts
index 4e7cff08e6..145e38568a 100644
--- a/app/client/src/sagas/DatasourcesSagas.ts
+++ b/app/client/src/sagas/DatasourcesSagas.ts
@@ -1187,15 +1187,16 @@ function* filePickerActionCallbackSaga(
 
     const datasource: Datasource = yield select(getDatasource, datasourceId);
 
-    // When user selects cancel in file picker, we need to revert datasource status back to failure,
-    // so users cannot create queries on top of such faulty datasource
-    if (action === FilePickerActionStatus.CANCEL) {
-      set(
-        datasource,
-        "datasourceConfiguration.authentication.authenticationStatus",
-        AuthenticationStatus.FAILURE,
-      );
-    }
+    // update authentication status based on whether files were picked or not
+    const authStatus =
+      action === FilePickerActionStatus.PICKED
+        ? AuthenticationStatus.SUCCESS
+        : AuthenticationStatus.FAILURE;
+    set(
+      datasource,
+      "datasourceConfiguration.authentication.authenticationStatus",
+      authStatus,
+    );
 
     // Once users selects/cancels the file selection,
     // Sending sheet ids selected as part of datasource
diff --git a/app/server/appsmith-plugins/googleSheetsPlugin/src/main/java/com/external/utils/SheetsUtil.java b/app/server/appsmith-plugins/googleSheetsPlugin/src/main/java/com/external/utils/SheetsUtil.java
index 02cd63260d..30ca8d94f8 100644
--- a/app/server/appsmith-plugins/googleSheetsPlugin/src/main/java/com/external/utils/SheetsUtil.java
+++ b/app/server/appsmith-plugins/googleSheetsPlugin/src/main/java/com/external/utils/SheetsUtil.java
@@ -1,5 +1,6 @@
 package com.external.utils;
 
+import com.appsmith.external.models.OAuth2;
 import com.external.enums.GoogleSheetMethodEnum;
 import com.fasterxml.jackson.databind.JsonNode;
 
@@ -13,6 +14,7 @@ import com.appsmith.external.models.DatasourceConfiguration;
 
 public class SheetsUtil {
 
+    private static final String FILE_SPECIFIC_DRIVE_SCOPE = "https://www.googleapis.com/auth/drive.file";
     static Pattern COLUMN_NAME_PATTERN = Pattern.compile("[a-zA-Z]+");
 
     public static int getColumnNumber(String columnName) {
@@ -29,9 +31,12 @@ public class SheetsUtil {
     }
 
     public static Set<String> getUserAuthorizedSheetIds(DatasourceConfiguration datasourceConfiguration) {
+        OAuth2 oAuth2 = (OAuth2) datasourceConfiguration.getAuthentication();
         if (!isEmpty(datasourceConfiguration.getProperties())
                 && datasourceConfiguration.getProperties().get(0) != null
-                && datasourceConfiguration.getProperties().get(0).getValue() != null) {
+                && datasourceConfiguration.getProperties().get(0).getValue() != null
+                && oAuth2.getScope() != null
+                && oAuth2.getScope().contains(FILE_SPECIFIC_DRIVE_SCOPE)) {
             ArrayList<String> temp = (ArrayList) datasourceConfiguration.getProperties().get(0).getValue();
             return new HashSet<String>(temp);
         }
diff --git a/app/server/appsmith-server/src/main/java/com/appsmith/server/solutions/ce/AuthenticationServiceCEImpl.java b/app/server/appsmith-server/src/main/java/com/appsmith/server/solutions/ce/AuthenticationServiceCEImpl.java
index 1ddce7c1f0..7bb48275f1 100644
--- a/app/server/appsmith-server/src/main/java/com/appsmith/server/solutions/ce/AuthenticationServiceCEImpl.java
+++ b/app/server/appsmith-server/src/main/java/com/appsmith/server/solutions/ce/AuthenticationServiceCEImpl.java
@@ -425,10 +425,6 @@ public class AuthenticationServiceCEImpl implements AuthenticationServiceCE {
                                 }
                             })
                             .flatMap(authenticationResponse -> {
-                                datasource
-                                        .getDatasourceConfiguration()
-                                        .getAuthentication()
-                                        .setAuthenticationStatus(AuthenticationDTO.AuthenticationStatus.SUCCESS);
                                 OAuth2 oAuth2 = (OAuth2) datasource.getDatasourceConfiguration().getAuthentication();
                                 oAuth2.setAuthenticationResponse(authenticationResponse);
                                 final Map tokenResponse = (Map) authenticationResponse.getTokenResponse();
@@ -440,6 +436,8 @@ public class AuthenticationServiceCEImpl implements AuthenticationServiceCE {
                                     }
                                 }
                                 datasource.getDatasourceConfiguration().setAuthentication(oAuth2);
+
+                                // When authentication scope is for specific sheets, we need to send token and project id
                                 String accessToken = "";
                                 String projectID = "";
                                 if (oAuth2.getScope() != null && oAuth2.getScope().contains(FILE_SPECIFIC_DRIVE_SCOPE)) {
@@ -448,6 +446,17 @@ public class AuthenticationServiceCEImpl implements AuthenticationServiceCE {
                                         projectID = authenticationResponse.getProjectID();
                                     }
                                 }
+
+                                // when authentication scope is other than specific sheets, we need to set authentication status as success
+                                // for specific sheets, it needs to remain in as in progress until files are selected
+                                // Once files are selected, client sets authentication status as SUCCESS, we can find this code in
+                                // /app/client/src/sagas/DatasourcesSagas.ts, line 1195
+                                if (oAuth2.getScope() != null && !oAuth2.getScope().contains(FILE_SPECIFIC_DRIVE_SCOPE)) {
+                                    datasource
+                                            .getDatasourceConfiguration()
+                                            .getAuthentication()
+                                            .setAuthenticationStatus(AuthenticationDTO.AuthenticationStatus.SUCCESS);
+                                }
                                 return Mono.zip(Mono.just(datasource), Mono.just(accessToken), Mono.just(projectID));
                             });
                 })