diff --git a/services/core/java/com/android/server/wm/ActivityRecord.java b/services/core/java/com/android/server/wm/ActivityRecord.java
index b946e7e060443..71802b22d4b4f 100644
--- a/services/core/java/com/android/server/wm/ActivityRecord.java
+++ b/services/core/java/com/android/server/wm/ActivityRecord.java
@@ -8071,6 +8071,7 @@ final class ActivityRecord extends WindowToken implements WindowManagerService.A
         mSizeCompatScale = 1f;
         mSizeCompatBounds = null;
         mCompatDisplayInsets = null;
+        mLetterboxUiController.clearInheritedCompatDisplayInsets();
     }
 
     @VisibleForTesting
diff --git a/services/core/java/com/android/server/wm/LetterboxUiController.java b/services/core/java/com/android/server/wm/LetterboxUiController.java
index 0db76bfe347ff..cf97edc342f68 100644
--- a/services/core/java/com/android/server/wm/LetterboxUiController.java
+++ b/services/core/java/com/android/server/wm/LetterboxUiController.java
@@ -1477,6 +1477,10 @@ final class LetterboxUiController {
         return mInheritedCompatDisplayInsets;
     }
 
+    void clearInheritedCompatDisplayInsets() {
+        mInheritedCompatDisplayInsets = null;
+    }
+
     /**
      * In case of translucent activities, it consumes the {@link ActivityRecord} of the first opaque
      * activity beneath using the given consumer and returns {@code true}.
diff --git a/services/tests/wmtests/src/com/android/server/wm/SizeCompatTests.java b/services/tests/wmtests/src/com/android/server/wm/SizeCompatTests.java
index 3ab9ea9061282..e097d891d39f8 100644
--- a/services/tests/wmtests/src/com/android/server/wm/SizeCompatTests.java
+++ b/services/tests/wmtests/src/com/android/server/wm/SizeCompatTests.java
@@ -63,6 +63,8 @@ import static com.google.common.truth.Truth.assertThat;
 import static org.junit.Assert.assertEquals;
 import static org.junit.Assert.assertFalse;
 import static org.junit.Assert.assertNotEquals;
+import static org.junit.Assert.assertNotNull;
+import static org.junit.Assert.assertNull;
 import static org.junit.Assert.assertTrue;
 import static org.mockito.ArgumentMatchers.any;
 import static org.mockito.ArgumentMatchers.anyBoolean;
@@ -458,6 +460,33 @@ public class SizeCompatTests extends WindowTestsBase {
         assertEquals(translucentActivity.getBounds(), mActivity.getBounds());
     }
 
+    @Test
+    public void testTranslucentActivity_clearSizeCompatMode_inheritedCompatDisplayInsetsCleared() {
+        mWm.mLetterboxConfiguration.setTranslucentLetterboxingOverrideEnabled(true);
+        setUpDisplaySizeWithApp(2800, 1400);
+        mActivity.mDisplayContent.setIgnoreOrientationRequest(true /* ignoreOrientationRequest */);
+        prepareUnresizable(mActivity, -1f /* maxAspect */, SCREEN_ORIENTATION_PORTRAIT);
+        // Rotate to put activity in size compat mode.
+        rotateDisplay(mActivity.mDisplayContent, ROTATION_90);
+        assertTrue(mActivity.inSizeCompatMode());
+
+        // We launch a transparent activity
+        final ActivityRecord translucentActivity = new ActivityBuilder(mAtm)
+                .setLaunchedFromUid(mActivity.getUid())
+                .setScreenOrientation(SCREEN_ORIENTATION_PORTRAIT)
+                .build();
+        doReturn(false).when(translucentActivity).fillsParent();
+        mTask.addChild(translucentActivity);
+
+        // The transparent activity inherits the compat display insets of the opaque activity
+        // beneath it
+        assertNotNull(translucentActivity.getCompatDisplayInsets());
+
+        // Clearing SCM should also clear the inherited compat display insets
+        translucentActivity.clearSizeCompatMode();
+        assertNull(translucentActivity.getCompatDisplayInsets());
+    }
+
     @Test
     public void testRestartProcessIfVisible() {
         setUpDisplaySizeWithApp(1000, 2500);