diff --git a/packages/apps/virtual-machine/templates/_helpers.tpl b/packages/apps/virtual-machine/templates/_helpers.tpl
index e65cad9db..ddea90feb 100644
--- a/packages/apps/virtual-machine/templates/_helpers.tpl
+++ b/packages/apps/virtual-machine/templates/_helpers.tpl
@@ -70,6 +70,29 @@ Generate a stable UUID for cloud-init re-initialization upon upgrade.
 {{- $uuid }}
 {{- end }}
 
+{{/*
+Domain resources (cpu, memory) as a JSON object.
+Used in vm.yaml for rendering and in the update hook for merge patches.
+*/}}
+{{- define "virtual-machine.domainResources" -}}
+{{- $result := dict -}}
+{{- if or .Values.cpuModel (and .Values.resources .Values.resources.cpu .Values.resources.sockets) -}}
+  {{- $cpu := dict -}}
+  {{- if and .Values.resources .Values.resources.cpu .Values.resources.sockets -}}
+    {{- $_ := set $cpu "cores" (.Values.resources.cpu | int64) -}}
+    {{- $_ := set $cpu "sockets" (.Values.resources.sockets | int64) -}}
+  {{- end -}}
+  {{- if .Values.cpuModel -}}
+    {{- $_ := set $cpu "model" .Values.cpuModel -}}
+  {{- end -}}
+  {{- $_ := set $result "cpu" $cpu -}}
+{{- end -}}
+{{- if and .Values.resources .Values.resources.memory -}}
+  {{- $_ := set $result "resources" (dict "requests" (dict "memory" .Values.resources.memory)) -}}
+{{- end -}}
+{{- $result | toJson -}}
+{{- end -}}
+
 {{/*
 Node Affinity for Windows VMs
 */}}
diff --git a/packages/apps/virtual-machine/templates/vm-update-hook.yaml b/packages/apps/virtual-machine/templates/vm-update-hook.yaml
index 3c7d7d341..65ee02f01 100644
--- a/packages/apps/virtual-machine/templates/vm-update-hook.yaml
+++ b/packages/apps/virtual-machine/templates/vm-update-hook.yaml
@@ -14,14 +14,21 @@
 {{- $needUpdateProfile := false -}}
 {{- $needResizePVC := false -}}
 {{- $needRecreateService := false -}}
+{{- $needRemoveInstanceType := false -}}
+{{- $needRemoveCustomResources := false -}}
 
-{{- if and $existingVM $instanceType -}}
+{{- $existingHasInstanceType := and $existingVM $existingVM.spec.instancetype -}}
+{{- if and $existingHasInstanceType (not $instanceType) -}}
+  {{- $needRemoveInstanceType = true -}}
+{{- else if and $existingHasInstanceType $instanceType -}}
   {{- if not (eq $existingVM.spec.instancetype.name $instanceType) -}}
     {{- $needUpdateType = true -}}
   {{- end -}}
+{{- else if and $existingVM (not $existingHasInstanceType) $instanceType -}}
+  {{- $needRemoveCustomResources = true -}}
 {{- end -}}
 
-{{- if and $existingVM $instanceProfile -}}
+{{- if and $existingVM $existingVM.spec.preference $instanceProfile -}}
   {{- if not (eq $existingVM.spec.preference.name $instanceProfile) -}}
     {{- $needUpdateProfile = true -}}
   {{- end -}}
@@ -45,7 +52,7 @@
   {{- end -}}
 {{- end -}}
 
-{{- if or $needUpdateType $needUpdateProfile $needResizePVC $needRecreateService }}
+{{- if or $needUpdateType $needUpdateProfile $needResizePVC $needRecreateService $needRemoveInstanceType $needRemoveCustomResources }}
 apiVersion: batch/v1
 kind: Job
 metadata:
@@ -90,6 +97,20 @@ spec:
                 -p '{"spec":{"preference":{"name": "{{ $instanceProfile }}", "revisionName": null}}}'
               {{- end }}
 
+              {{- if $needRemoveInstanceType }}
+              echo "Removing instancetype from VM (switching to custom resources)..."
+              kubectl patch virtualmachines.kubevirt.io {{ $vmName }} -n {{ $namespace }} \
+                --type merge \
+                -p '{"spec":{"instancetype":null{{- if not $instanceProfile }},"preference":null{{- end }},"template":{"spec":{"domain":{{ include "virtual-machine.domainResources" . }}}}}}'
+              {{- end }}
+
+              {{- if $needRemoveCustomResources }}
+              echo "Removing custom CPU/memory from domain (switching to instancetype)..."
+              kubectl patch virtualmachines.kubevirt.io {{ $vmName }} -n {{ $namespace }} \
+                --type merge \
+                -p '{"spec":{"instancetype":{"name":"{{ $instanceType }}","revisionName":null},"template":{"spec":{"domain":{"cpu":null,"resources":null}}}}}'
+              {{- end }}
+
               {{- if $needResizePVC }}
               echo "Patching PVC for storage resize..."
               kubectl patch pvc {{ $vmName }} -n {{ $namespace }} \
diff --git a/packages/apps/virtual-machine/templates/vm.yaml b/packages/apps/virtual-machine/templates/vm.yaml
index 1a2e7a30c..c1b673440 100644
--- a/packages/apps/virtual-machine/templates/vm.yaml
+++ b/packages/apps/virtual-machine/templates/vm.yaml
@@ -4,6 +4,9 @@
 {{- if and .Values.instanceProfile (not (lookup "instancetype.kubevirt.io/v1beta1" "VirtualMachineClusterPreference" "" .Values.instanceProfile)) }}
 {{-   fail (printf "Specified profile not exists in cluster: %s" .Values.instanceProfile) }}
 {{- end }}
+{{- if and (not .Values.instanceType) (not (and .Values.resources .Values.resources.cpu .Values.resources.sockets .Values.resources.memory)) }}
+{{-   fail "Either instanceType or resources (cpu, sockets, memory) must be specified" }}
+{{- end }}
 
 apiVersion: kubevirt.io/v1
 kind: VirtualMachine
@@ -71,15 +74,12 @@ spec:
         {{- include "virtual-machine.labels" . | nindent 8 }}
     spec:
       domain:
-        {{- if and .Values.resources .Values.resources.cpu .Values.resources.sockets }}
-        cpu:
-          cores: {{ .Values.resources.cpu }}
-          sockets: {{ .Values.resources.sockets }}
+        {{- $domainRes := include "virtual-machine.domainResources" . | fromJson -}}
+        {{- with $domainRes.cpu }}
+        cpu: {{- . | toYaml | nindent 10 }}
         {{- end }}
-        {{- if and .Values.resources .Values.resources.memory }}
-        resources:
-          requests:
-            memory: {{ .Values.resources.memory | quote }}
+        {{- with $domainRes.resources }}
+        resources: {{- . | toYaml | nindent 10 }}
         {{- end }}
         firmware:
           uuid: {{ include "virtual-machine.stableUuid" . }}