diff --git a/components/org.wso2.carbon.identity.organization.management.application/src/main/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListener.java b/components/org.wso2.carbon.identity.organization.management.application/src/main/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListener.java
index 283b1294b..842e8bdd5 100644
--- a/components/org.wso2.carbon.identity.organization.management.application/src/main/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListener.java
+++ b/components/org.wso2.carbon.identity.organization.management.application/src/main/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListener.java
@@ -132,15 +132,22 @@ public boolean doPreCreateApplication(ServiceProvider serviceProvider, String te
             throws IdentityApplicationManagementException {
 
         try {
-            String organizationId = getOrganizationManager().resolveOrganizationId(tenantDomain);
-            int organizationDepthInHierarchy =
-                    getOrganizationManager().getOrganizationDepthInHierarchy(organizationId);
-            if (isSubOrganization(organizationDepthInHierarchy) &&
-                    !isSharedAppFromInternalProcess(serviceProvider, tenantDomain)) {
-                throw new IdentityApplicationManagementClientException(
-                        ERROR_CODE_SUB_ORG_CANNOT_CREATE_APP.getCode(),
-                        ERROR_CODE_SUB_ORG_CANNOT_CREATE_APP.getMessage());
+            boolean isFragmentApp = serviceProvider.getSpProperties() != null &&
+                    Arrays.stream(serviceProvider.getSpProperties()).anyMatch(
+                            property -> IS_FRAGMENT_APP.equals(property.getName()) &&
+                                    Boolean.parseBoolean(property.getValue()));
+            if (isFragmentApp) {
+                String organizationId = getOrganizationManager().resolveOrganizationId(tenantDomain);
+                int organizationDepthInHierarchy =
+                        getOrganizationManager().getOrganizationDepthInHierarchy(organizationId);
+                if (isSubOrganization(organizationDepthInHierarchy) &&
+                        !isSharedAppFromSharingProcess(serviceProvider, tenantDomain)) {
+                    throw new IdentityApplicationManagementClientException(
+                            ERROR_CODE_SUB_ORG_CANNOT_CREATE_APP.getCode(),
+                            ERROR_CODE_SUB_ORG_CANNOT_CREATE_APP.getMessage());
+                }
             }
+            return true;
         } catch (OrganizationManagementClientException e) {
             if (LOG.isDebugEnabled()) {
                 LOG.debug("Organization not found for the tenant: " + tenantDomain);
@@ -584,7 +591,7 @@ private ClaimMapping[] addApplicationRolesToFilteredClaimMappings(ClaimMapping[]
      * @param tenantDomain    The tenant domain which the service provider app is belongs to.
      * @return True if app is shared by an internal process of Asgardeo for sharing apps to sub organizations.
      */
-    private boolean isSharedAppFromInternalProcess(ServiceProvider serviceProvider, String tenantDomain) {
+    private boolean isSharedAppFromSharingProcess(ServiceProvider serviceProvider, String tenantDomain) {
 
         return serviceProvider.getSpProperties() != null && Arrays.stream(serviceProvider.getSpProperties())
                 .anyMatch(property -> IS_FRAGMENT_APP.equals(property.getName()) &&
diff --git a/components/org.wso2.carbon.identity.organization.management.application/src/test/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListenerTest.java b/components/org.wso2.carbon.identity.organization.management.application/src/test/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListenerTest.java
index 596fb0f90..2c61136b2 100644
--- a/components/org.wso2.carbon.identity.organization.management.application/src/test/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListenerTest.java
+++ b/components/org.wso2.carbon.identity.organization.management.application/src/test/java/org/wso2/carbon/identity/organization/management/application/listener/FragmentApplicationMgtListenerTest.java
@@ -101,7 +101,7 @@ public Object[][] getSubOrganizationMetaData() {
 
         return new Object[][]{
                 // Create application in sub-organization.
-                {"orgId2", 2, tenantDomain, false, true},
+                {"orgId2", 2, tenantDomain, false, false},
                 // Create an application in a sub-organization, and it's marked as a fragment app.
                 {"orgId3", 2, tenantDomain, true, true},
                 // Create an application marked as a fragmented app by an internal process of primaryTenantDomain.