diff --git a/CHANGELOG.md b/CHANGELOG.md
index 5499ba87d6..2cbe67eb63 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -50,6 +50,7 @@ Our versioning strategy is as follows:
 * `[templates/nextjs-sxa]` The background image in the Container component was being generated from the image ID instead of the mediaUrl parameter. This fix changes that behavior. ([#1879](https://github.com/Sitecore/jss/pull/1879))
 * `[templates/nextjs-sxa]` The caption of image component has been fixed. ([#1874](https://github.com/Sitecore/jss/pull/1874))
 * `[sitecore-jss-nextjs]` A bug has been fixed in the redirect middleware that occurred when a user clicked on a link rendered by the Link component from the Next.js library(next/link). ([#1876](https://github.com/Sitecore/jss/pull/1876))
+* `[sitecore-jss-nextjs]` Disable nextjs image optimization in edit and preview modes. This prevents rendering issues in XM Cloud Pages Edit and Preview.
 
 ### 🎉 New Features & Improvements
 
diff --git a/packages/sitecore-jss-nextjs/src/components/NextImage.test.tsx b/packages/sitecore-jss-nextjs/src/components/NextImage.test.tsx
index e39b28c793..21c2a2bfc3 100644
--- a/packages/sitecore-jss-nextjs/src/components/NextImage.test.tsx
+++ b/packages/sitecore-jss-nextjs/src/components/NextImage.test.tsx
@@ -7,14 +7,23 @@ import { NextImage } from './NextImage';
 import {
   ImageField,
   DefaultEmptyFieldEditingComponentImage,
+  LayoutServicePageState,
+  SitecoreContextReactContext,
 } from '@sitecore-jss/sitecore-jss-react';
-import { ImageLoader } from 'next/image';
+import Image, { ImageLoader } from 'next/image';
 import { spy, match } from 'sinon';
 import sinonChai from 'sinon-chai';
 import { SinonSpy } from 'sinon';
 
 use(sinonChai);
+const setContext = spy();
 const expect = chai.use(chaiString).expect;
+const testContextProps = {
+  context: {
+    pageState: LayoutServicePageState.Normal,
+  },
+  setContext,
+};
 
 describe('<NextImage />', () => {
   const HOSTNAME = 'https://cm.jss.localhost';
@@ -39,7 +48,11 @@ describe('<NextImage />', () => {
       height: 10,
     };
 
-    const mounted = mount(<NextImage loader={mockLoader} {...props} />);
+    const mounted = mount(
+      <SitecoreContextReactContext.Provider value={testContextProps}>
+        <NextImage loader={mockLoader} {...props} />
+      </SitecoreContextReactContext.Provider>
+    );
     const rendered = mounted.find('img');
     it('should render image with url', () => {
       expect(rendered).to.have.lengthOf(1);
@@ -64,7 +77,11 @@ describe('<NextImage />', () => {
       className: 'the-dude-abides',
     };
 
-    const rendered = mount(<NextImage loader={mockLoader} {...props} />).find('img');
+    const rendered = mount(
+      <SitecoreContextReactContext.Provider value={testContextProps}>
+        <NextImage loader={mockLoader} {...props} />
+      </SitecoreContextReactContext.Provider>
+    ).find('img');
 
     it('should render image with needed props', () => {
       expect(rendered).to.have.length(1);
@@ -88,9 +105,11 @@ describe('<NextImage />', () => {
       const field = {
         value: { src: '/assets/img/test0.png', alt: 'my image', width: 200, height: 400 },
       };
-      const rendered = mount(<NextImage loader={mockLoader} {...props} field={field} fill />).find(
-        'img'
-      );
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props} field={field} fill />
+        </SitecoreContextReactContext.Provider>
+      ).find('img');
 
       expect(rendered).to.have.length(1);
       expect(rendered.prop('src')).to.equal(`${HOSTNAME}${props.field.value.src}?w=${props.width}`);
@@ -112,7 +131,11 @@ describe('<NextImage />', () => {
       id: 'some-id',
       className: 'the-dude-abides',
     };
-    const rendered = mount(<NextImage loader={mockLoader} {...props} />).find('img');
+    const rendered = mount(
+      <SitecoreContextReactContext.Provider value={testContextProps}>
+        <NextImage loader={mockLoader} {...props} />
+      </SitecoreContextReactContext.Provider>
+    ).find('img');
 
     it('should render image component with "value" properties', () => {
       expect(rendered).to.have.length(1);
@@ -141,7 +164,11 @@ describe('<NextImage />', () => {
         className: 'the-dude-abides',
       };
 
-      const rendered = mount(<NextImage loader={mockLoader} {...props} />).find('img');
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props} />
+        </SitecoreContextReactContext.Provider>
+      ).find('img');
 
       expect(rendered).to.have.length(1);
       expect(rendered.prop('src')).to.eql(`${HOSTNAME}${props.field.value.src}?w=${props.width}`);
@@ -162,7 +189,11 @@ describe('<NextImage />', () => {
       editable: false,
       className: 'the-dude-abides w-100',
     };
-    const rendered = mount(<NextImage loader={mockLoader} {...props} />).find('img');
+    const rendered = mount(
+      <SitecoreContextReactContext.Provider value={testContextProps}>
+        <NextImage loader={mockLoader} {...props} />
+      </SitecoreContextReactContext.Provider>
+    ).find('img');
 
     it('should render image component with "value" properties', () => {
       expect(rendered).to.have.length(1);
@@ -191,16 +222,25 @@ describe('<NextImage />', () => {
         imageParams: { foo: 'bar' },
         mediaUrlPrefix: /\/([-~]{1})assets\//i,
       };
-      const rendered = mount(<NextImage loader={mockLoader} {...props} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props} />
+        </SitecoreContextReactContext.Provider>
+      );
 
       expect(rendered.find('img').prop('src')).to.equal(
         `${HOSTNAME}/~/jssmedia/img/test0.png?foo=bar&w=8`
       );
-      rendered.setProps({
+      const props2 = {
         ...props,
         field: { src: '/-assets/img/test0.png' },
-      });
-      expect(rendered.find('img').prop('src')).to.equal(
+      };
+      const rendered2 = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props2} />
+        </SitecoreContextReactContext.Provider>
+      );
+      expect(rendered2.find('img').prop('src')).to.equal(
         `${HOSTNAME}/-/jssmedia/img/test0.png?foo=bar&w=8`
       );
       expect(mockLoader.called).to.be.true;
@@ -223,17 +263,26 @@ describe('<NextImage />', () => {
         imageParams: { foo: 'bar' },
         mediaUrlPrefix: /\/([-~]{1})assets\//i,
       };
-      const rendered = mount(<NextImage loader={mockLoader} {...props} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props} />
+        </SitecoreContextReactContext.Provider>
+      );
       expect(rendered.find('img').prop('src')).to.equal(
         `${HOSTNAME}/~/jssmedia/img/test0.png?foo=bar&w=8`
       );
-      rendered.setProps({
+      const props2 = {
         ...props,
         field: { src: '/-assets/img/test0.png' },
         width,
         height: 10,
-      });
-      expect(rendered.find('img').prop('src')).to.equal(
+      };
+      const rendered2 = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...props2} />
+        </SitecoreContextReactContext.Provider>
+      );
+      expect(rendered2.find('img').prop('src')).to.equal(
         `${HOSTNAME}/-/jssmedia/img/test0.png?foo=bar&w=8`
       );
       expect(mockLoader.called).to.be.true;
@@ -247,7 +296,11 @@ describe('<NextImage />', () => {
 
     it('should render no image when field prop is empty', () => {
       const img = '' as ImageField;
-      const rendered = mount(<NextImage field={img} />).find('img');
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage field={img} />
+        </SitecoreContextReactContext.Provider>
+      ).find('img');
       expect(rendered).to.have.length(0);
     });
   });
@@ -258,9 +311,13 @@ describe('<NextImage />', () => {
       const field = {
         src: '/assets/img/test0.png',
       };
-      expect(() => mount(<NextImage src={src} field={field} />)).to.throw(
-        'Detected src prop. If you wish to use src, use next/image directly.'
-      );
+      expect(() =>
+        mount(
+          <SitecoreContextReactContext.Provider value={testContextProps}>
+            <NextImage src={src} field={field} />
+          </SitecoreContextReactContext.Provider>
+        )
+      ).to.throw('Detected src prop. If you wish to use src, use next/image directly.');
     });
   });
 
@@ -276,7 +333,11 @@ describe('<NextImage />', () => {
       loader: userMockLoader,
     };
 
-    const rendered = mount(<NextImage {...props} />).find('img');
+    const rendered = mount(
+      <SitecoreContextReactContext.Provider value={testContextProps}>
+        <NextImage {...props} />
+      </SitecoreContextReactContext.Provider>
+    ).find('img');
 
     it('should render image with url', () => {
       expect(rendered).to.have.lengthOf(1);
@@ -291,6 +352,12 @@ describe('<NextImage />', () => {
   });
 
   describe('editMode metadata', () => {
+    const testEditingContext = {
+      ...testContextProps,
+      context: {
+        pageState: LayoutServicePageState.Edit,
+      },
+    };
     const testMetadata = {
       contextItem: {
         id: '{09A07660-6834-476C-B93B-584248D3003B}',
@@ -309,14 +376,18 @@ describe('<NextImage />', () => {
         metadata: testMetadata,
       };
 
-      const rendered = mount(<NextImage field={field} fill={true} />);
-
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} fill={true} />
+        </SitecoreContextReactContext.Provider>
+      );
+      // we expect imgSrc from nextjs optimizations to be absent in editing/metadata mode
       expect(rendered.html()).to.equal(
         [
           `<code type="text/sitecore" chrometype="field" class="scpm" kind="open">${JSON.stringify(
             testMetadata
           )}</code>`,
-          '<img alt="my image" loading="lazy" decoding="async" data-nimg="fill" style="position: absolute; height: 100%; width: 100%; left: 0px; top: 0px; right: 0px; bottom: 0px; color: transparent;" sizes="100vw" srcset="/_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=640&amp;q=75 640w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=750&amp;q=75 750w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=828&amp;q=75 828w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=1080&amp;q=75 1080w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=1200&amp;q=75 1200w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=1920&amp;q=75 1920w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=2048&amp;q=75 2048w, /_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=3840&amp;q=75 3840w" src="/_next/image?url=%2Fassets%2Fimg%2Ftest0.png&amp;w=3840&amp;q=75">',
+          '<img alt="my image" loading="lazy" decoding="async" data-nimg="fill" style="position: absolute; height: 100%; width: 100%; left: 0px; top: 0px; right: 0px; bottom: 0px; color: transparent;" src="/assets/img/test0.png">',
           '<code type="text/sitecore" chrometype="field" class="scpm" kind="close"></code>',
         ].join('')
       );
@@ -328,7 +399,11 @@ describe('<NextImage />', () => {
         metadata: testMetadata,
       };
 
-      const rendered = mount(<NextImage field={field} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} />
+        </SitecoreContextReactContext.Provider>
+      );
       const defaultEmptyImagePlaceholder = mount(<DefaultEmptyFieldEditingComponentImage />);
       expect(rendered.html()).to.equal(
         [
@@ -347,7 +422,11 @@ describe('<NextImage />', () => {
         metadata: testMetadata,
       };
 
-      const rendered = mount(<NextImage field={field} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} />
+        </SitecoreContextReactContext.Provider>
+      );
       const defaultEmptyImagePlaceholder = mount(<DefaultEmptyFieldEditingComponentImage />);
       expect(rendered.html()).to.equal(
         [
@@ -371,7 +450,9 @@ describe('<NextImage />', () => {
       );
 
       const rendered = mount(
-        <NextImage field={field} emptyFieldEditingComponent={EmptyFieldEditingComponent} />
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} emptyFieldEditingComponent={EmptyFieldEditingComponent} />
+        </SitecoreContextReactContext.Provider>
       );
 
       expect(rendered.html()).to.equal(
@@ -396,7 +477,9 @@ describe('<NextImage />', () => {
       );
 
       const rendered = mount(
-        <NextImage field={field} emptyFieldEditingComponent={EmptyFieldEditingComponent} />
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} emptyFieldEditingComponent={EmptyFieldEditingComponent} />
+        </SitecoreContextReactContext.Provider>
       );
 
       expect(rendered.html()).to.equal(
@@ -416,7 +499,11 @@ describe('<NextImage />', () => {
         metadata: testMetadata,
       };
 
-      const rendered = mount(<NextImage field={field} editable={false} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} editable={false} />
+        </SitecoreContextReactContext.Provider>
+      );
 
       expect(rendered.html()).to.equal('');
     });
@@ -427,9 +514,66 @@ describe('<NextImage />', () => {
         metadata: testMetadata,
       };
 
-      const rendered = mount(<NextImage field={field} editable={false} />);
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage field={field} editable={false} />
+        </SitecoreContextReactContext.Provider>
+      );
 
       expect(rendered.html()).to.equal('');
     });
   });
+
+  describe('unoptimized property manipulation', () => {
+    const props = {
+      field: { value: { src: '/assets/img/test0.png' } },
+      width,
+      height: 10,
+      id: 'some-id',
+      className: 'the-dude-abides',
+    };
+
+    it('should render unoptimized image in edit mode', () => {
+      const testEditingContext = {
+        ...testContextProps,
+        context: {
+          pageState: LayoutServicePageState.Edit,
+        },
+      };
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage loader={mockLoader} {...props} />
+        </SitecoreContextReactContext.Provider>
+      ).find(Image);
+      expect(rendered.prop('unoptimized')).to.equal(true);
+    });
+
+    it('should render unoptimized image in preview mode', () => {
+      const testEditingContext = {
+        ...testContextProps,
+        context: {
+          pageState: LayoutServicePageState.Preview,
+        },
+      };
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testEditingContext}>
+          <NextImage loader={mockLoader} {...props} />
+        </SitecoreContextReactContext.Provider>
+      ).find(Image);
+      expect(rendered.prop('unoptimized')).to.equal(true);
+    });
+
+    it('should render respect original unoptimized value in normal mode', () => {
+      const modifiedProps = {
+        ...props,
+        unoptimized: true,
+      };
+      const rendered = mount(
+        <SitecoreContextReactContext.Provider value={testContextProps}>
+          <NextImage loader={mockLoader} {...modifiedProps} />
+        </SitecoreContextReactContext.Provider>
+      ).find(Image);
+      expect(rendered.prop('unoptimized')).to.equal(true);
+    });
+  });
 });
diff --git a/packages/sitecore-jss-nextjs/src/components/NextImage.tsx b/packages/sitecore-jss-nextjs/src/components/NextImage.tsx
index 96b4a31c13..9723645e44 100644
--- a/packages/sitecore-jss-nextjs/src/components/NextImage.tsx
+++ b/packages/sitecore-jss-nextjs/src/components/NextImage.tsx
@@ -7,16 +7,18 @@ import {
   ImageField,
   ImageFieldValue,
   withFieldMetadata,
+  SitecoreContextReactContext,
 } from '@sitecore-jss/sitecore-jss-react';
 import Image, { ImageProps as NextImageProperties } from 'next/image';
 import { withEmptyFieldEditingComponent } from '@sitecore-jss/sitecore-jss-react';
 import { DefaultEmptyFieldEditingComponentImage } from '@sitecore-jss/sitecore-jss-react';
-import { isFieldValueEmpty } from '@sitecore-jss/sitecore-jss/layout';
+import { isFieldValueEmpty, LayoutServicePageState } from '@sitecore-jss/sitecore-jss/layout';
 
 type NextImageProps = ImageProps & Partial<NextImageProperties>;
 export const NextImage: React.FC<NextImageProps> = withFieldMetadata<NextImageProps>(
   withEmptyFieldEditingComponent<NextImageProps>(
     ({ editable = true, imageParams, field, mediaUrlPrefix, fill, priority, ...otherProps }) => {
+      const sitecoreContext = React.useContext(SitecoreContextReactContext);
       // next handles src and we use a custom loader,
       // throw error if these are present
       if (otherProps.src) {
@@ -49,6 +51,11 @@ export const NextImage: React.FC<NextImageProps> = withFieldMetadata<NextImagePr
         return null;
       }
 
+      // disable image optimization for Edit and Preview, but preserve original value if true
+      const unoptimized =
+        otherProps.unoptimized ||
+        sitecoreContext.context?.pageState !== LayoutServicePageState.Normal;
+
       const attrs = {
         ...img,
         ...otherProps,
@@ -59,6 +66,7 @@ export const NextImage: React.FC<NextImageProps> = withFieldMetadata<NextImagePr
           imageParams as { [paramName: string]: string | number },
           mediaUrlPrefix as RegExp
         ),
+        unoptimized,
       };
 
       const imageProps = {