diff --git a/release-notes/unreleased/170-applyset-label-propagation.md b/release-notes/unreleased/170-applyset-label-propagation.md
new file mode 100644
index 0000000..88eda25
--- /dev/null
+++ b/release-notes/unreleased/170-applyset-label-propagation.md
@@ -0,0 +1,32 @@
+# Release Notes for Issue #170: Do not propagate ApplySet bookkeeping labels
+
+## Bug Fix
+
+### What Changed
+
+`RestateDeployment` no longer copies labels in the
+`applyset.kubernetes.io/` namespace onto its operator-owned Services, Knative
+Configurations, or Knative Routes. Other user labels continue to propagate.
+
+### Why This Matters
+
+kubectl uses `applyset.kubernetes.io/part-of` to decide which resources belong
+to an ApplySet. Copying that label made operator-owned child resources look
+like direct members of the ApplySet that contained the `RestateDeployment`.
+A later `kubectl apply --prune --applyset=...` could consequently delete a
+versioned Service before Restate had drained the corresponding deployment.
+
+### Impact on Users
+
+- Existing `RestateDeployment` resources need no manifest changes.
+- The operator removes the bookkeeping labels from children on reconciliation.
+- kubectl continues to manage and prune the `RestateDeployment` itself.
+
+### Migration Guidance
+
+Upgrade the operator. No CRD or workload configuration changes are required.
+
+### Related Issues
+
+- Issue #170: RestateDeployment propagates ApplySet membership to owned
+  resources
diff --git a/src/controllers/restatedeployment/controller.rs b/src/controllers/restatedeployment/controller.rs
index cebee63..63a797d 100644
--- a/src/controllers/restatedeployment/controller.rs
+++ b/src/controllers/restatedeployment/controller.rs
@@ -55,6 +55,17 @@ use super::reconcilers::replicaset::{
 pub(super) const RESTATE_DEPLOYMENT_ID_ANNOTATION: &str = "restate.dev/deployment-id";
 pub(super) const OWNED_BY_LABEL: &str = "restate.dev/owned-by";
 pub(super) const APP_MANAGED_BY_LABEL: &str = "app.kubernetes.io/managed-by";
+const APPLYSET_LABEL_PREFIX: &str = "applyset.kubernetes.io/";
+
+/// Copy user labels to an operator-owned child without copying ApplySet
+/// bookkeeping. A child that inherits `applyset.kubernetes.io/part-of` becomes
+/// an accidental member of the parent's kubectl ApplySet and can be pruned even
+/// though it was created and is still needed by this operator.
+pub(super) fn propagated_labels(labels: &BTreeMap<String, String>) -> BTreeMap<String, String> {
+    let mut propagated = labels.clone();
+    propagated.retain(|key, _| !key.starts_with(APPLYSET_LABEL_PREFIX));
+    propagated
+}
 
 pub(super) struct Context {
     /// Kubernetes client
@@ -391,7 +402,7 @@ impl RestateDeployment {
                 .await?;
         }
 
-        let mut service_labels = self.labels().clone();
+        let mut service_labels = propagated_labels(self.labels());
         service_labels.insert(
             APP_MANAGED_BY_LABEL.to_string(),
             "restate-operator".to_string(),
@@ -1546,4 +1557,24 @@ mod tests {
         let s1_again = latest_version_label_selector(&v1, None).expect("v1 selector again");
         assert_eq!(s1, s1_again, "selector should be deterministic");
     }
+
+    #[test]
+    fn propagated_labels_exclude_applyset_bookkeeping() {
+        let labels = BTreeMap::from([
+            ("app.kubernetes.io/name".to_string(), "greeter".to_string()),
+            (
+                "applyset.kubernetes.io/part-of".to_string(),
+                "applyset-parent-id".to_string(),
+            ),
+            (
+                "applyset.kubernetes.io/id".to_string(),
+                "applyset-parent-id".to_string(),
+            ),
+        ]);
+
+        assert_eq!(
+            propagated_labels(&labels),
+            BTreeMap::from([("app.kubernetes.io/name".to_string(), "greeter".to_string())])
+        );
+    }
 }
diff --git a/src/controllers/restatedeployment/reconcilers/knative.rs b/src/controllers/restatedeployment/reconcilers/knative.rs
index 4ea5993..775d88e 100644
--- a/src/controllers/restatedeployment/reconcilers/knative.rs
+++ b/src/controllers/restatedeployment/reconcilers/knative.rs
@@ -9,7 +9,7 @@ use tracing::*;
 use url::Url;
 
 use crate::controllers::restatedeployment::controller::{
-    Context, RESTATE_DEPLOYMENT_ID_ANNOTATION,
+    Context, RESTATE_DEPLOYMENT_ID_ANNOTATION, propagated_labels,
 };
 use crate::controllers::restatedeployment::reconcilers::replicaset::generate_pod_template_hash;
 use crate::resources::knative::{
@@ -338,7 +338,7 @@ fn build_configuration_spec(
         config_annotations.insert(RESTATE_POD_TEMPLATE_ANNOTATION.to_string(), v.to_string());
     }
 
-    let mut config_labels = rsd.labels().clone();
+    let mut config_labels = propagated_labels(rsd.labels());
     config_labels.insert(
         "app.kubernetes.io/managed-by".to_string(),
         "restate-operator".to_string(),
@@ -516,7 +516,7 @@ fn build_route_spec(
     route_annotations.insert(RESTATE_DEPLOYMENT_ANNOTATION.to_string(), rsd.name_any());
 
     // Propagate RestateDeployment labels to Route
-    let mut route_labels = rsd.labels().clone();
+    let mut route_labels = propagated_labels(rsd.labels());
     route_labels.insert(
         "app.kubernetes.io/managed-by".to_string(),
         "restate-operator".to_string(),