diff --git a/packages/edit-site/src/components/add-new-template/add-custom-generic-template-modal.js b/packages/edit-site/src/components/add-new-template/add-custom-generic-template-modal.js
index 05688d032a591..97c6fc041a2cf 100644
--- a/packages/edit-site/src/components/add-new-template/add-custom-generic-template-modal.js
+++ b/packages/edit-site/src/components/add-new-template/add-custom-generic-template-modal.js
@@ -10,22 +10,12 @@ import { useState } from '@wordpress/element';
 import { __ } from '@wordpress/i18n';
 import {
 	Button,
-	Modal,
 	TextControl,
 	__experimentalHStack as HStack,
 	__experimentalVStack as VStack,
 } from '@wordpress/components';
 
-/**
- * Internal dependencies
- */
-import TemplateActionsLoadingScreen from './template-actions-loading-screen';
-
-function AddCustomGenericTemplateModal( {
-	onClose,
-	createTemplate,
-	isCreatingTemplate,
-} ) {
+function AddCustomGenericTemplateModal( { onClose, createTemplate } ) {
 	const [ title, setTitle ] = useState( '' );
 	const defaultTitle = __( 'Custom Template' );
 	const [ isBusy, setIsBusy ] = useState( false );
@@ -50,51 +40,42 @@ function AddCustomGenericTemplateModal( {
 		}
 	}
 	return (
-		<Modal
-			title={ __( 'Create custom template' ) }
-			onRequestClose={ () => {
-				onClose();
-			} }
-			overlayClassName="edit-site-custom-generic-template__modal"
-		>
-			{ isCreatingTemplate && <TemplateActionsLoadingScreen /> }
-			<form onSubmit={ onCreateTemplate }>
-				<VStack spacing={ 6 }>
-					<TextControl
-						__nextHasNoMarginBottom
-						label={ __( 'Name' ) }
-						value={ title }
-						onChange={ setTitle }
-						placeholder={ defaultTitle }
-						disabled={ isBusy }
-						help={ __(
-							'Describe the template, e.g. "Post with sidebar".'
-						) }
-					/>
-					<HStack
-						className="edit-site-custom-generic-template__modal-actions"
-						justify="right"
+		<form onSubmit={ onCreateTemplate }>
+			<VStack spacing={ 6 }>
+				<TextControl
+					__nextHasNoMarginBottom
+					label={ __( 'Name' ) }
+					value={ title }
+					onChange={ setTitle }
+					placeholder={ defaultTitle }
+					disabled={ isBusy }
+					help={ __(
+						'Describe the template, e.g. "Post with sidebar".'
+					) }
+				/>
+				<HStack
+					className="edit-site-custom-generic-template__modal-actions"
+					justify="right"
+				>
+					<Button
+						variant="tertiary"
+						onClick={ () => {
+							onClose();
+						} }
+					>
+						{ __( 'Cancel' ) }
+					</Button>
+					<Button
+						variant="primary"
+						type="submit"
+						isBusy={ isBusy }
+						aria-disabled={ isBusy }
 					>
-						<Button
-							variant="tertiary"
-							onClick={ () => {
-								onClose();
-							} }
-						>
-							{ __( 'Cancel' ) }
-						</Button>
-						<Button
-							variant="primary"
-							type="submit"
-							isBusy={ isBusy }
-							aria-disabled={ isBusy }
-						>
-							{ __( 'Create' ) }
-						</Button>
-					</HStack>
-				</VStack>
-			</form>
-		</Modal>
+						{ __( 'Create' ) }
+					</Button>
+				</HStack>
+			</VStack>
+		</form>
 	);
 }
 
diff --git a/packages/edit-site/src/components/add-new-template/add-custom-template-modal.js b/packages/edit-site/src/components/add-new-template/add-custom-template-modal.js
index ccab5d82bd058..b6e91da3cb589 100644
--- a/packages/edit-site/src/components/add-new-template/add-custom-template-modal.js
+++ b/packages/edit-site/src/components/add-new-template/add-custom-template-modal.js
@@ -2,12 +2,11 @@
  * WordPress dependencies
  */
 import { useState, useMemo, useEffect } from '@wordpress/element';
-import { __, sprintf } from '@wordpress/i18n';
+import { __ } from '@wordpress/i18n';
 import {
 	Button,
 	Flex,
 	FlexItem,
-	Modal,
 	SearchControl,
 	TextHighlight,
 	__experimentalText as Text,
@@ -23,7 +22,6 @@ import { decodeEntities } from '@wordpress/html-entities';
 /**
  * Internal dependencies
  */
-import TemplateActionsLoadingScreen from './template-actions-loading-screen';
 import { mapToIHasNameAndId } from './utils';
 
 const EMPTY_ARRAY = [];
@@ -179,36 +177,25 @@ function SuggestionList( { entityForSuggestions, onSelect } ) {
 	);
 }
 
-function AddCustomTemplateModal( {
-	onClose,
-	onSelect,
-	entityForSuggestions,
-	isCreatingTemplate,
-} ) {
+function AddCustomTemplateModal( { onSelect, entityForSuggestions } ) {
 	const [ showSearchEntities, setShowSearchEntities ] = useState(
 		entityForSuggestions.hasGeneralTemplate
 	);
-	const baseCssClass = 'edit-site-custom-template-modal';
 	return (
-		<Modal
-			title={ sprintf(
-				// translators: %s: Name of the post type e.g: "Post".
-				__( 'Add template: %s' ),
-				entityForSuggestions.labels.singular_name
-			) }
-			className={ baseCssClass }
-			onRequestClose={ onClose }
-		>
-			{ isCreatingTemplate && <TemplateActionsLoadingScreen /> }
+		<>
 			{ ! showSearchEntities && (
-				<VStack spacing={ 4 }>
+				<VStack
+					spacing={ 4 }
+					className="edit-site-custom-template-modal__contents-wrapper"
+					alignment="left"
+				>
 					<Text as="p">
 						{ __(
 							'Select whether to create a single template for all items or a specific one.'
 						) }
 					</Text>
 					<Flex
-						className={ `${ baseCssClass }__contents` }
+						className="edit-site-custom-template-modal__contents"
 						gap="4"
 						align="initial"
 					>
@@ -275,7 +262,11 @@ function AddCustomTemplateModal( {
 				</VStack>
 			) }
 			{ showSearchEntities && (
-				<VStack spacing={ 4 }>
+				<VStack
+					spacing={ 4 }
+					className="edit-site-custom-template-modal__contents-wrapper"
+					alignment="left"
+				>
 					<Text as="p">
 						{ __(
 							'This template will be used only for the specific item chosen.'
@@ -287,7 +278,7 @@ function AddCustomTemplateModal( {
 					/>
 				</VStack>
 			) }
-		</Modal>
+		</>
 	);
 }
 
diff --git a/packages/edit-site/src/components/add-new-template/new-template.js b/packages/edit-site/src/components/add-new-template/new-template.js
index 1ae6dcca087d6..e90931e5e6c30 100644
--- a/packages/edit-site/src/components/add-new-template/new-template.js
+++ b/packages/edit-site/src/components/add-new-template/new-template.js
@@ -1,3 +1,8 @@
+/**
+ * External dependencies
+ */
+import classnames from 'classnames';
+
 /**
  * WordPress dependencies
  */
@@ -54,7 +59,12 @@ const DEFAULT_TEMPLATE_SLUGS = [
 function TemplateListItem( { title, description, onClick } ) {
 	return (
 		<Button onClick={ onClick }>
-			<VStack as="span" spacing={ 2 }>
+			<VStack
+				as="span"
+				spacing={ 2 }
+				justify="flex-start"
+				style={ { width: '100%' } }
+			>
 				<Text
 					weight={ 500 }
 					lineHeight={ 1.53846153846 } // 20px
@@ -71,15 +81,21 @@ function TemplateListItem( { title, description, onClick } ) {
 	);
 }
 
+const modalContentMap = {
+	templatesList: 1,
+	customTemplate: 2,
+	customGenericTemplate: 3,
+};
+
 export default function NewTemplate( {
 	postType,
 	toggleProps,
 	showIcon = true,
 } ) {
-	const [ showTemplatesListModal, setShowTemplatesListModal ] =
-		useState( false );
-	const [ showCustomTemplateModal, setShowCustomTemplateModal ] =
-		useState( false );
+	const [ showModal, setShowModal ] = useState( false );
+	const [ modalContent, setModalContent ] = useState(
+		modalContentMap.templatesList
+	);
 	const [
 		showCustomGenericTemplateModal,
 		setShowCustomGenericTemplateModal,
@@ -147,94 +163,115 @@ export default function NewTemplate( {
 			setIsCreatingTemplate( false );
 		}
 	}
+	const onModalClose = () => {
+		setShowModal( false );
+		setModalContent( modalContentMap.templatesList );
+	};
 
-	const missingTemplates = useMissingTemplates(
-		setEntityForSuggestions,
-		setShowCustomTemplateModal
+	const missingTemplates = useMissingTemplates( setEntityForSuggestions, () =>
+		setModalContent( modalContentMap.customTemplate )
 	);
 	if ( ! missingTemplates.length ) {
 		return null;
 	}
 	const { as: Toggle = Button, ...restToggleProps } = toggleProps ?? {};
-	// TODO: Remove obsolete styles..
+
+	let modalTitle = __( 'Add template' );
+	if ( modalContent === modalContentMap.customTemplate ) {
+		modalTitle = sprintf(
+			// translators: %s: Name of the post type e.g: "Post".
+			__( 'Add template: %s' ),
+			entityForSuggestions.labels.singular_name
+		);
+	} else if ( showCustomGenericTemplateModal ) {
+		modalTitle = __( 'Create custom template' );
+	}
+	// TODO: Remove obsolete styles and unify modals's styles.
 	return (
 		<>
 			{ isCreatingTemplate && <TemplateActionsLoadingScreen /> }
 			<Toggle
 				{ ...restToggleProps }
-				onClick={ () => {
-					setShowTemplatesListModal( true );
-				} }
+				onClick={ () => setShowModal( true ) }
 				icon={ showIcon ? plus : null }
 				label={ postType.labels.add_new }
 			>
 				{ showIcon ? null : postType.labels.add_new }
 			</Toggle>
-			{ showTemplatesListModal && (
+			{ showModal && (
 				<Modal
-					title={ __( 'Add template' ) }
-					// isFullScreen
-					className="edit-site-add-new-template__modal"
-					onRequestClose={ () => setShowTemplatesListModal( false ) }
+					title={ modalTitle }
+					className={ classnames(
+						'edit-site-add-new-template__modal',
+						{
+							'edit-site-add-new-template__modal_template_list':
+								modalContent === modalContentMap.templatesList,
+							'edit-site-custom-template-modal':
+								modalContent === modalContentMap.customTemplate,
+						}
+					) }
+					onRequestClose={ onModalClose }
+					overlayClassName={
+						modalContent === modalContentMap.customGenericTemplate
+							? 'edit-site-custom-generic-template__modal'
+							: undefined
+					}
 				>
-					<Grid
-						columns={ 3 }
-						gap={ 4 }
-						align="flex-start"
-						justify="center"
-						className="edit-site-add-new-template__modal__contents"
-					>
-						{ missingTemplates.map( ( template ) => {
-							const { title, description, slug, onClick } =
-								template;
-							return (
-								<TemplateListItem
-									key={ slug }
-									title={ title }
-									description={ description }
-									onClick={ () =>
-										onClick
-											? onClick( template )
-											: createTemplate( template )
-									}
-								/>
-							);
-						} ) }
-						<TemplateListItem
-							title={ __( 'Custom template' ) }
-							description={ __(
-								'A custom template can be manually applied to any post or page.'
-							) }
-							onClick={ () =>
-								setShowCustomGenericTemplateModal( true )
-							}
+					{ modalContent === modalContentMap.templatesList && (
+						<Grid
+							columns={ 3 }
+							gap={ 4 }
+							align="flex-start"
+							justify="center"
+							className="edit-site-add-new-template__modal__contents"
+						>
+							{ missingTemplates.map( ( template ) => {
+								const { title, description, slug, onClick } =
+									template;
+								return (
+									<TemplateListItem
+										key={ slug }
+										title={ title }
+										description={ description }
+										onClick={ () =>
+											onClick
+												? onClick( template )
+												: createTemplate( template )
+										}
+									/>
+								);
+							} ) }
+							<TemplateListItem
+								title={ __( 'Custom template' ) }
+								description={ __(
+									'A custom template can be manually applied to any post or page.'
+								) }
+								onClick={ () =>
+									setShowCustomGenericTemplateModal( true )
+								}
+							/>
+						</Grid>
+					) }
+					{ modalContent === modalContentMap.customTemplate && (
+						<AddCustomTemplateModal
+							onSelect={ createTemplate }
+							entityForSuggestions={ entityForSuggestions }
 						/>
-					</Grid>
+					) }
+					{ modalContent ===
+						modalContentMap.customGenericTemplate && (
+						<AddCustomGenericTemplateModal
+							onClose={ onModalClose }
+							createTemplate={ createTemplate }
+						/>
+					) }
 				</Modal>
 			) }
-			{ showCustomTemplateModal && (
-				<AddCustomTemplateModal
-					onClose={ () => setShowCustomTemplateModal( false ) }
-					onSelect={ createTemplate }
-					entityForSuggestions={ entityForSuggestions }
-					isCreatingTemplate={ isCreatingTemplate }
-				/>
-			) }
-			{ showCustomGenericTemplateModal && (
-				<AddCustomGenericTemplateModal
-					onClose={ () => setShowCustomGenericTemplateModal( false ) }
-					createTemplate={ createTemplate }
-					isCreatingTemplate={ isCreatingTemplate }
-				/>
-			) }
 		</>
 	);
 }
 
-function useMissingTemplates(
-	setEntityForSuggestions,
-	setShowCustomTemplateModal
-) {
+function useMissingTemplates( setEntityForSuggestions, onClick ) {
 	const existingTemplates = useExistingTemplates();
 	const defaultTemplateTypes = useDefaultTemplateTypes();
 	const existingTemplateSlugs = ( existingTemplates || [] ).map(
@@ -246,7 +283,7 @@ function useMissingTemplates(
 			! existingTemplateSlugs.includes( template.slug )
 	);
 	const onClickMenuItem = ( _entityForSuggestions ) => {
-		setShowCustomTemplateModal( true );
+		onClick?.();
 		setEntityForSuggestions( _entityForSuggestions );
 	};
 	// We need to replace existing default template types with
diff --git a/packages/edit-site/src/components/add-new-template/style.scss b/packages/edit-site/src/components/add-new-template/style.scss
index 880d4b3c54e6b..d00f5999eece4 100644
--- a/packages/edit-site/src/components/add-new-template/style.scss
+++ b/packages/edit-site/src/components/add-new-template/style.scss
@@ -18,9 +18,19 @@
 }
 
 .edit-site-custom-template-modal {
-	&__suggestions_list {
-		margin-left: - $grid-unit-15;
-		margin-right: - $grid-unit-15;
+	&__contents-wrapper {
+		height: 100%;
+		justify-content: flex-start !important; // Required as topLeft alignment isn't working on VStack
+
+		> * {
+			width: 100%;
+		}
+
+		&__suggestions_list {
+			margin-left: - $grid-unit-15;
+			margin-right: - $grid-unit-15;
+			width: calc(100% + #{$grid-unit-15 * 2});
+		}
 	}
 
 	&__contents {
@@ -48,7 +58,6 @@
 
 	.edit-site-custom-template-modal__suggestions_list {
 		@include break-small() {
-			height: 232px;
 			overflow: scroll;
 		}
 
@@ -140,6 +149,21 @@
 		justify-content: center;
 		height: 100%;
 	}
+}
+
+.edit-site-add-new-template__modal,
+.edit-site-custom-template-modal {
+	max-width: $grid-unit-80 * 13;
+	width: calc(100% - #{$grid-unit-80});
+	height: calc(100% - #{$grid-unit-80});
+	max-height: none;
+
+	@include break-large() {
+		width: calc(100% - #{$grid-unit-80 * 2});
+		height: calc(100% - #{$grid-unit-80 * 2});
+		max-height: none;
+	}
+
 	.components-modal__children-container {
 		height: 100%;
 	}
@@ -153,6 +177,7 @@
 		display: flex;
 		flex-direction: column;
 		border: $border-width solid $gray-300;
+		min-height: $grid-unit-80 * 3;
 
 		// Show the boundary of the button, in High Contrast Mode.
 		outline: 1px solid transparent;
@@ -190,8 +215,11 @@
 }
 
 .edit-site-add-new-template__modal__contents {
+	padding-bottom: $grid-unit-40;
+
 	> .components-button {
 		height: 100%;
 		text-align: start;
+		align-items: flex-start;
 	}
 }