diff --git a/packages/block-editor/src/components/block-list/block.js b/packages/block-editor/src/components/block-list/block.js
index 3980dd7b2aead3..c385ea4cd6367f 100644
--- a/packages/block-editor/src/components/block-list/block.js
+++ b/packages/block-editor/src/components/block-list/block.js
@@ -376,26 +376,26 @@ const applyWithDispatch = withDispatch( ( dispatch, ownProps, registry ) => {
 				) {
 					removeBlock( _clientId );
 				} else {
-					if (
-						canInsertBlockType(
-							getBlockName( firstClientId ),
-							targetRootClientId
-						)
-					) {
-						moveBlocksToPosition(
-							[ firstClientId ],
-							_clientId,
-							targetRootClientId,
-							getBlockIndex( _clientId )
-						);
-					} else {
-						const replacement = switchToBlockType(
-							getBlock( firstClientId ),
-							getDefaultBlockName()
-						);
-
-						if ( replacement && replacement.length ) {
-							registry.batch( () => {
+					registry.batch( () => {
+						if (
+							canInsertBlockType(
+								getBlockName( firstClientId ),
+								targetRootClientId
+							)
+						) {
+							moveBlocksToPosition(
+								[ firstClientId ],
+								_clientId,
+								targetRootClientId,
+								getBlockIndex( _clientId )
+							);
+						} else {
+							const replacement = switchToBlockType(
+								getBlock( firstClientId ),
+								getDefaultBlockName()
+							);
+
+							if ( replacement && replacement.length ) {
 								insertBlocks(
 									replacement,
 									getBlockIndex( _clientId ),
@@ -403,16 +403,16 @@ const applyWithDispatch = withDispatch( ( dispatch, ownProps, registry ) => {
 									changeSelection
 								);
 								removeBlock( firstClientId, false );
-							} );
+							}
 						}
-					}
 
-					if (
-						! getBlockOrder( _clientId ).length &&
-						isUnmodifiedBlock( getBlock( _clientId ) )
-					) {
-						removeBlock( _clientId, false );
-					}
+						if (
+							! getBlockOrder( _clientId ).length &&
+							isUnmodifiedBlock( getBlock( _clientId ) )
+						) {
+							removeBlock( _clientId, false );
+						}
+					} );
 				}
 			}
 
diff --git a/packages/block-library/src/list-item/transforms.js b/packages/block-library/src/list-item/transforms.js
index 6e05f8501b5a3b..7918b45a6b0279 100644
--- a/packages/block-library/src/list-item/transforms.js
+++ b/packages/block-library/src/list-item/transforms.js
@@ -1,15 +1,17 @@
 /**
  * WordPress dependencies
  */
-import { createBlock } from '@wordpress/blocks';
+import { createBlock, cloneBlock } from '@wordpress/blocks';
 
 const transforms = {
 	to: [
 		{
 			type: 'block',
 			blocks: [ 'core/paragraph' ],
-			transform: ( attributes ) =>
+			transform: ( attributes, innerBlocks = [] ) => [
 				createBlock( 'core/paragraph', attributes ),
+				...innerBlocks.map( ( block ) => cloneBlock( block ) ),
+			],
 		},
 	],
 };
diff --git a/test/e2e/specs/editor/blocks/list.spec.js b/test/e2e/specs/editor/blocks/list.spec.js
index bdf366fd73f47b..a4af98f0ba0578 100644
--- a/test/e2e/specs/editor/blocks/list.spec.js
+++ b/test/e2e/specs/editor/blocks/list.spec.js
@@ -486,6 +486,71 @@ test.describe( 'List (@firefox)', () => {
 		);
 	} );
 
+	test( 'should keep nested list items when merging with paragraph', async ( {
+		editor,
+		page,
+		pageUtils,
+	} ) => {
+		const startingContent = [
+			{
+				name: 'core/paragraph',
+				attributes: { content: 'p' },
+			},
+			{
+				name: 'core/list',
+				innerBlocks: [
+					{
+						name: 'core/list-item',
+						attributes: { content: '1' },
+						innerBlocks: [
+							{
+								name: 'core/list',
+								innerBlocks: [
+									{
+										name: 'core/list-item',
+										attributes: { content: 'i' },
+									},
+								],
+							},
+						],
+					},
+				],
+			},
+		];
+		for ( const block of startingContent ) {
+			await editor.insertBlock( block );
+		}
+
+		// Move the caret in front of "1" in the first list item.
+		await page.keyboard.press( 'ArrowRight' );
+		await page.keyboard.press( 'ArrowRight' );
+		await page.keyboard.press( 'Backspace' );
+
+		await expect.poll( editor.getBlocks ).toMatchObject( [
+			{
+				name: 'core/paragraph',
+				attributes: { content: 'p' },
+			},
+			{
+				name: 'core/paragraph',
+				attributes: { content: '1' },
+			},
+			{
+				name: 'core/list',
+				innerBlocks: [
+					{
+						name: 'core/list-item',
+						attributes: { content: 'i' },
+					},
+				],
+			},
+		] );
+
+		await pageUtils.pressKeys( 'primary+z' );
+
+		await expect.poll( editor.getBlocks ).toMatchObject( startingContent );
+	} );
+
 	test( 'should split into two ordered lists with paragraph', async ( {
 		editor,
 		page,