diff --git a/api/kyverno/v1/image_verification_test.go b/api/kyverno/v1/image_verification_test.go
index 67883bd92e..3ff7a88178 100644
--- a/api/kyverno/v1/image_verification_test.go
+++ b/api/kyverno/v1/image_verification_test.go
@@ -199,9 +199,116 @@ func Test_ImageVerification(t *testing.T) {
 		},
 	}
 
+	isAuditFailureAction := false
 	for _, test := range testCases {
 		subject := test.subject.Convert()
-		errs := subject.Validate(path)
+		errs := subject.Validate(isAuditFailureAction, path)
+		var expectedErrs field.ErrorList
+		if test.errors != nil {
+			expectedErrs = test.errors(subject)
+		}
+
+		assert.Equal(t, len(errs), len(expectedErrs), fmt.Sprintf("test `%s` error count mismatch, errors %v", test.name, errs))
+		if len(errs) != 0 {
+			assert.DeepEqual(t, errs, expectedErrs)
+		}
+	}
+}
+
+func Test_Audit_VerifyImageRule(t *testing.T) {
+	path := field.NewPath("dummy")
+	testCases := []struct {
+		name    string
+		subject ImageVerification
+		errors  func(*ImageVerification) field.ErrorList
+	}{
+		{
+			name: "mutateDigest set to true for audit failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: true,
+			},
+			errors: func(i *ImageVerification) field.ErrorList {
+				return field.ErrorList{
+					field.Invalid(
+						path.Child("mutateDigest"),
+						i.MutateDigest,
+						"mutateDigest must be set to false for ‘Audit’ failure action"),
+				}
+			},
+		},
+		{
+			name: "mutateDigest set to false for audit failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: false,
+			},
+		},
+	}
+
+	isAuditFailureAction := true // indicates validateFailureAction set to Audit
+	for _, test := range testCases {
+		subject := test.subject.Convert()
+		errs := subject.Validate(isAuditFailureAction, path)
+		var expectedErrs field.ErrorList
+		if test.errors != nil {
+			expectedErrs = test.errors(subject)
+		}
+
+		assert.Equal(t, len(errs), len(expectedErrs), fmt.Sprintf("test `%s` error count mismatch, errors %v", test.name, errs))
+		if len(errs) != 0 {
+			assert.DeepEqual(t, errs, expectedErrs)
+		}
+	}
+}
+
+func Test_Enforce_VerifyImageRule(t *testing.T) {
+	path := field.NewPath("dummy")
+	testCases := []struct {
+		name    string
+		subject ImageVerification
+		errors  func(*ImageVerification) field.ErrorList
+	}{
+		{
+			name: "mutateDigest set to true for enforce failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: true,
+			},
+		},
+		{
+			name: "mutateDigest set to false for enforce failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: false,
+			},
+		},
+	}
+
+	isAuditFailureAction := false // indicates validateFailureAction set to Enforce
+	for _, test := range testCases {
+		subject := test.subject.Convert()
+		errs := subject.Validate(isAuditFailureAction, path)
 		var expectedErrs field.ErrorList
 		if test.errors != nil {
 			expectedErrs = test.errors(subject)
diff --git a/api/kyverno/v1/image_verification_types.go b/api/kyverno/v1/image_verification_types.go
index bdbab73cf2..4f281acdee 100644
--- a/api/kyverno/v1/image_verification_types.go
+++ b/api/kyverno/v1/image_verification_types.go
@@ -258,9 +258,13 @@ func (iv *ImageVerification) GetType() ImageVerificationType {
 }
 
 // Validate implements programmatic validation
-func (iv *ImageVerification) Validate(path *field.Path) (errs field.ErrorList) {
+func (iv *ImageVerification) Validate(isAuditFailureAction bool, path *field.Path) (errs field.ErrorList) {
 	copy := iv.Convert()
 
+	if isAuditFailureAction && iv.MutateDigest {
+		errs = append(errs, field.Invalid(path.Child("mutateDigest"), iv.MutateDigest, "mutateDigest must be set to false for ‘Audit’ failure action"))
+	}
+
 	if len(copy.ImageReferences) == 0 {
 		errs = append(errs, field.Invalid(path, iv, "An image reference is required"))
 	}
diff --git a/api/kyverno/v2beta1/image_verification_test.go b/api/kyverno/v2beta1/image_verification_test.go
index e5054a1879..caa0c95f6b 100644
--- a/api/kyverno/v2beta1/image_verification_test.go
+++ b/api/kyverno/v2beta1/image_verification_test.go
@@ -120,9 +120,116 @@ func Test_ImageVerification(t *testing.T) {
 		},
 	}
 
+	isAuditFailureAction := false
 	for _, test := range testCases {
 		subject := test.subject
-		errs := subject.Validate(path)
+		errs := subject.Validate(isAuditFailureAction, path)
+		var expectedErrs field.ErrorList
+		if test.errors != nil {
+			expectedErrs = test.errors(&subject)
+		}
+
+		assert.Equal(t, len(errs), len(expectedErrs), fmt.Sprintf("test `%s` error count mismatch, errors %v", test.name, errs))
+		if len(errs) != 0 {
+			assert.DeepEqual(t, errs, expectedErrs)
+		}
+	}
+}
+
+func Test_Audit_VerifyImageRule(t *testing.T) {
+	path := field.NewPath("dummy")
+	testCases := []struct {
+		name    string
+		subject ImageVerification
+		errors  func(*ImageVerification) field.ErrorList
+	}{
+		{
+			name: "mutateDigest set to true for audit failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []kyvernov1.Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: true,
+			},
+			errors: func(i *ImageVerification) field.ErrorList {
+				return field.ErrorList{
+					field.Invalid(
+						path.Child("mutateDigest"),
+						i.MutateDigest,
+						"mutateDigest must be set to false for ‘Audit’ failure action"),
+				}
+			},
+		},
+		{
+			name: "mutateDigest set to false for audit failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []kyvernov1.Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: false,
+			},
+		},
+	}
+
+	isAuditFailureAction := true // indicates validateFailureAction set to Audit
+	for _, test := range testCases {
+		subject := test.subject
+		errs := subject.Validate(isAuditFailureAction, path)
+		var expectedErrs field.ErrorList
+		if test.errors != nil {
+			expectedErrs = test.errors(&subject)
+		}
+
+		assert.Equal(t, len(errs), len(expectedErrs), fmt.Sprintf("test `%s` error count mismatch, errors %v", test.name, errs))
+		if len(errs) != 0 {
+			assert.DeepEqual(t, errs, expectedErrs)
+		}
+	}
+}
+
+func Test_Enforce_VerifyImageRule(t *testing.T) {
+	path := field.NewPath("dummy")
+	testCases := []struct {
+		name    string
+		subject ImageVerification
+		errors  func(*ImageVerification) field.ErrorList
+	}{
+		{
+			name: "mutateDigest set to true for enforce failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []kyvernov1.Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: true,
+			},
+		},
+		{
+			name: "mutateDigest set to false for enforce failure action",
+			subject: ImageVerification{
+				ImageReferences: []string{"*"},
+				Attestations: []kyvernov1.Attestation{
+					{
+						PredicateType: "foo",
+					},
+				},
+				MutateDigest: false,
+			},
+		},
+	}
+
+	isAuditFailureAction := false // indicates validateFailureAction set to Enforce
+	for _, test := range testCases {
+		subject := test.subject
+		errs := subject.Validate(isAuditFailureAction, path)
 		var expectedErrs field.ErrorList
 		if test.errors != nil {
 			expectedErrs = test.errors(&subject)
diff --git a/api/kyverno/v2beta1/image_verification_types.go b/api/kyverno/v2beta1/image_verification_types.go
index 62bb7f59ca..8485ccf15d 100644
--- a/api/kyverno/v2beta1/image_verification_types.go
+++ b/api/kyverno/v2beta1/image_verification_types.go
@@ -63,9 +63,13 @@ type ImageVerification struct {
 }
 
 // Validate implements programmatic validation
-func (iv *ImageVerification) Validate(path *field.Path) (errs field.ErrorList) {
+func (iv *ImageVerification) Validate(isAuditFailureAction bool, path *field.Path) (errs field.ErrorList) {
 	copy := iv
 
+	if isAuditFailureAction && iv.MutateDigest {
+		errs = append(errs, field.Invalid(path.Child("mutateDigest"), iv.MutateDigest, "mutateDigest must be set to false for ‘Audit’ failure action"))
+	}
+
 	if len(copy.ImageReferences) == 0 {
 		errs = append(errs, field.Invalid(path, iv, "An image reference is required"))
 	}
diff --git a/pkg/policy/validate.go b/pkg/policy/validate.go
index 0aa236e857..b64a0e3c7f 100644
--- a/pkg/policy/validate.go
+++ b/pkg/policy/validate.go
@@ -337,9 +337,14 @@ func Validate(policy, oldPolicy kyvernov1.PolicyInterface, client dclient.Interf
 		}
 
 		if rule.HasVerifyImages() {
+			isAuditFailureAction := false
+			if spec.ValidationFailureAction == kyvernov1.Audit {
+				isAuditFailureAction = true
+			}
+
 			verifyImagePath := rulePath.Child("verifyImages")
 			for index, i := range rule.VerifyImages {
-				errs = append(errs, i.Validate(verifyImagePath.Index(index))...)
+				errs = append(errs, i.Validate(isAuditFailureAction, verifyImagePath.Index(index))...)
 			}
 			if len(errs) != 0 {
 				return warnings, errs.ToAggregate()
diff --git a/test/conformance/kuttl/reports/background/verify-image-fail/policy.yaml b/test/conformance/kuttl/reports/background/verify-image-fail/policy.yaml
index fd32eb4a0c..0d1ff4f3cf 100644
--- a/test/conformance/kuttl/reports/background/verify-image-fail/policy.yaml
+++ b/test/conformance/kuttl/reports/background/verify-image-fail/policy.yaml
@@ -17,6 +17,7 @@ spec:
     - imageReferences:
       - ghcr.io/kyverno/test-verify-image:*
       verifyDigest: false
+      mutateDigest: false
       required: false
       attestors:
       - entries:
diff --git a/test/conformance/kuttl/reports/background/verify-image-pass/policy.yaml b/test/conformance/kuttl/reports/background/verify-image-pass/policy.yaml
index fd32eb4a0c..0d1ff4f3cf 100644
--- a/test/conformance/kuttl/reports/background/verify-image-pass/policy.yaml
+++ b/test/conformance/kuttl/reports/background/verify-image-pass/policy.yaml
@@ -17,6 +17,7 @@ spec:
     - imageReferences:
       - ghcr.io/kyverno/test-verify-image:*
       verifyDigest: false
+      mutateDigest: false
       required: false
       attestors:
       - entries: