diff --git a/CHANGELOG.md b/CHANGELOG.md
index f60d571e..867fe414 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -9,8 +9,8 @@ The format is based on [Keep a Changelog](https://keepachangelog.com/en/1.0.0/),
 
 ### Changed
 
-- Update `InputFileAvatar` core component to remove `onFileSelect` property and use `value` and `onChange` properties
-  instead
+- Update `InputFileAvatar` core component to remove `onFileSelect` and `onFileError` properties and use `value` and
+  `onChange` properties instead
 - Update `IProposalActionUpdateMetadataDaoMetadata` interface `logo` property to `avatar` to better align with actions
 - Bump `softprops/action-gh-release` from 2.2.0 to 2.2.1
 - Update minor and patch NPM dependencies
diff --git a/src/core/components/forms/inputFileAvatar/inputFileAvatar.api.ts b/src/core/components/forms/inputFileAvatar/inputFileAvatar.api.ts
index 45a595f7..986c0f24 100644
--- a/src/core/components/forms/inputFileAvatar/inputFileAvatar.api.ts
+++ b/src/core/components/forms/inputFileAvatar/inputFileAvatar.api.ts
@@ -19,6 +19,10 @@ export interface IInputFileAvatarValue {
      * File object of the image.
      */
     file?: File;
+    /**
+     * Error message if image upload fails.
+     */
+    error?: InputFileAvatarError;
 }
 
 export interface IInputFileAvatarProps
@@ -33,10 +37,6 @@ export interface IInputFileAvatarProps
      *  The current value of the input.
      */
     value?: IInputFileAvatarValue;
-    /**
-     * Function that is called when a file is rejected. Passes the error message to the parent component.
-     */
-    onFileError?: (error: InputFileAvatarError) => void;
     /**
      * Allowed file extensions, it must be an object with the keys set to the MIME type
      * and the values an array of file extensions (see https://developer.mozilla.org/en-US/docs/Web/API/window/showOpenFilePicker#accept)
diff --git a/src/core/components/forms/inputFileAvatar/inputFileAvatar.test.tsx b/src/core/components/forms/inputFileAvatar/inputFileAvatar.test.tsx
index 1d04b890..87472cb2 100644
--- a/src/core/components/forms/inputFileAvatar/inputFileAvatar.test.tsx
+++ b/src/core/components/forms/inputFileAvatar/inputFileAvatar.test.tsx
@@ -107,18 +107,18 @@ describe('<InputFileAvatar /> component', () => {
         expect(revokeObjectURLMock).toHaveBeenCalledWith(fileSrc);
     });
 
-    it('calls onFileError when file has incorrect dimensions', async () => {
+    it('calls onChange and sets error property when file has incorrect dimensions', async () => {
         const user = userEvent.setup();
         (window.Image.prototype as HTMLImageElement).width = 800;
 
         const label = 'test-label';
         const file = new File(['test'], 'test.png', { type: 'image/png' });
-        const onFileError = jest.fn();
+        const onChange = jest.fn();
         const minDimension = 1000;
 
-        render(createTestComponent({ label, onFileError, minDimension }));
+        render(createTestComponent({ label, onChange, minDimension }));
         await user.upload(screen.getByLabelText(label), file);
-        await waitFor(() => expect(onFileError).toHaveBeenCalledWith(InputFileAvatarError.WRONG_DIMENSION));
+        await waitFor(() => expect(onChange).toHaveBeenCalledWith({ error: InputFileAvatarError.WRONG_DIMENSION }));
     });
 
     it('displays the initialValue image preview when provided', async () => {
@@ -129,4 +129,26 @@ describe('<InputFileAvatar /> component', () => {
         expect(previewImg).toBeInTheDocument();
         expect(previewImg.src).toEqual(value.url);
     });
+
+    it('renders the cancel button when error is present and clears error on button click', async () => {
+        const user = userEvent.setup();
+        const onChange = jest.fn();
+
+        const { rerender } = render(
+            createTestComponent({
+                onChange,
+                value: { error: InputFileAvatarError.WRONG_DIMENSION },
+            }),
+        );
+
+        const cancelButton = await screen.findByRole('button');
+        expect(cancelButton).toBeInTheDocument();
+
+        await user.click(cancelButton);
+
+        expect(onChange).toHaveBeenCalledWith(undefined);
+
+        rerender(createTestComponent({ onChange }));
+        expect(screen.queryByRole('button')).not.toBeInTheDocument();
+    });
 });
diff --git a/src/core/components/forms/inputFileAvatar/inputFileAvatar.tsx b/src/core/components/forms/inputFileAvatar/inputFileAvatar.tsx
index 9d453f25..317ceb7f 100644
--- a/src/core/components/forms/inputFileAvatar/inputFileAvatar.tsx
+++ b/src/core/components/forms/inputFileAvatar/inputFileAvatar.tsx
@@ -41,7 +41,6 @@ const dropzoneErrorToError: Record<string, InputFileAvatarError | undefined> = {
 
 export const InputFileAvatar: React.FC<IInputFileAvatarProps> = (props) => {
     const {
-        onFileError,
         maxFileSize,
         minDimension,
         maxDimension,
@@ -64,7 +63,7 @@ export const InputFileAvatar: React.FC<IInputFileAvatarProps> = (props) => {
             if (rejectedFiles.length > 0) {
                 const dropzoneError = rejectedFiles[0].errors[0].code;
                 const internalError = dropzoneErrorToError[dropzoneError] ?? InputFileAvatarError.UNKNOWN_ERROR;
-                onFileError?.(internalError);
+                onChange({ error: internalError });
 
                 return;
             }
@@ -78,9 +77,9 @@ export const InputFileAvatar: React.FC<IInputFileAvatarProps> = (props) => {
                 const isAboveMaxDimension = maxDimension && (image.width > maxDimension || image.height > maxDimension);
 
                 if (onlySquare && image.height !== image.width) {
-                    onFileError?.(InputFileAvatarError.SQUARE_ONLY);
+                    onChange({ error: InputFileAvatarError.SQUARE_ONLY });
                 } else if (isBelowMinDimension ?? isAboveMaxDimension) {
-                    onFileError?.(InputFileAvatarError.WRONG_DIMENSION);
+                    onChange({ error: InputFileAvatarError.WRONG_DIMENSION });
                 } else {
                     onChange({ url: image.src, file });
                 }
@@ -91,12 +90,12 @@ export const InputFileAvatar: React.FC<IInputFileAvatarProps> = (props) => {
             image.addEventListener('load', onImageLoad);
             image.addEventListener('error', () => {
                 setIsLoading(false);
-                onFileError?.(InputFileAvatarError.UNKNOWN_ERROR);
+                onChange({ error: InputFileAvatarError.UNKNOWN_ERROR });
             });
 
             image.src = URL.createObjectURL(file);
         },
-        [maxDimension, minDimension, onChange, onFileError, onlySquare],
+        [maxDimension, minDimension, onChange, onlySquare],
     );
 
     const { getRootProps, getInputProps } = useDropzone({
@@ -128,7 +127,8 @@ export const InputFileAvatar: React.FC<IInputFileAvatarProps> = (props) => {
         <InputContainer id={randomId} useCustomWrapper={true} {...containerProps}>
             <div {...getRootProps()} className={inputAvatarClassNames}>
                 <input {...getInputProps()} id={randomId} />
-                {value?.url ? (
+
+                {value?.url || value?.error ? (
                     <div className="relative">
                         <Avatar src={value.url} size="lg" className="cursor-pointer" data-testid="avatar" />
                         <button