diff --git a/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion.go b/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion.go
index b5c1553fd..11d4cb577 100644
--- a/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion.go
+++ b/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion.go
@@ -48,6 +48,9 @@ func (src *ManagedClusterAddOn) ConvertTo(dstRaw conversion.Hub) error {
 	// This field was removed in v1beta1, so we store it in annotation
 	if installNs, ok := src.Annotations[InstallNamespaceAnnotation]; ok {
 		v1alpha1Obj.Spec.InstallNamespace = installNs
+		// Remove the internal annotation from v1alpha1 object
+		// This annotation is only used for v1beta1 storage, not for v1alpha1 API
+		delete(v1alpha1Obj.Annotations, InstallNamespaceAnnotation)
 	}
 
 	// Manually populate deprecated ConfigReferent field in ConfigReferences
diff --git a/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion_test.go b/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion_test.go
index c0faa87a9..2a8a6efaa 100644
--- a/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion_test.go
+++ b/pkg/addon/webhook/v1beta1/managedclusteraddon_conversion_test.go
@@ -106,9 +106,8 @@ func TestManagedClusterAddOnConvertTo(t *testing.T) {
 					ObjectMeta: metav1.ObjectMeta{
 						Name:      "test-addon",
 						Namespace: "cluster1",
-						Annotations: map[string]string{
-							"addon.open-cluster-management.io/v1alpha1-install-namespace": "test-namespace",
-						},
+						// The internal annotation should be removed after conversion to v1alpha1
+						Annotations: map[string]string{},
 					},
 					Spec: addonv1alpha1.ManagedClusterAddOnSpec{
 						InstallNamespace: "test-namespace",
@@ -178,6 +177,43 @@ func TestManagedClusterAddOnConvertTo(t *testing.T) {
 				},
 			},
 		},
+		{
+			name: "conversion removes internal annotation but preserves user annotations",
+			src: &ManagedClusterAddOn{
+				ManagedClusterAddOn: addonv1beta1.ManagedClusterAddOn{
+					ObjectMeta: metav1.ObjectMeta{
+						Name:      "test-addon",
+						Namespace: "cluster1",
+						Annotations: map[string]string{
+							"addon.open-cluster-management.io/v1alpha1-install-namespace": "test-namespace",
+							"abc.def":         "hahaha",
+							"user.annotation": "should-be-preserved",
+						},
+					},
+					Spec: addonv1beta1.ManagedClusterAddOnSpec{},
+				},
+			},
+			expected: &internalv1alpha1.ManagedClusterAddOn{
+				ManagedClusterAddOn: addonv1alpha1.ManagedClusterAddOn{
+					TypeMeta: metav1.TypeMeta{
+						Kind:       "ManagedClusterAddOn",
+						APIVersion: "addon.open-cluster-management.io/v1alpha1",
+					},
+					ObjectMeta: metav1.ObjectMeta{
+						Name:      "test-addon",
+						Namespace: "cluster1",
+						// Internal annotation removed, user annotations preserved
+						Annotations: map[string]string{
+							"abc.def":         "hahaha",
+							"user.annotation": "should-be-preserved",
+						},
+					},
+					Spec: addonv1alpha1.ManagedClusterAddOnSpec{
+						InstallNamespace: "test-namespace",
+					},
+				},
+			},
+		},
 	}
 
 	for _, tc := range cases {