diff --git a/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/index.ts b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/index.ts
index 629f329c72b9b..c8b55a49edc00 100644
--- a/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/index.ts
+++ b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/index.ts
@@ -14,3 +14,4 @@ export { dataSourceDiffAlgorithm } from './data_source_diff_algorithm';
 export { kqlQueryDiffAlgorithm } from './kql_query_diff_algorithm';
 export { eqlQueryDiffAlgorithm } from './eql_query_diff_algorithm';
 export { esqlQueryDiffAlgorithm } from './esql_query_diff_algorithm';
+export { ruleTypeDiffAlgorithm } from './rule_type_diff_algorithm';
diff --git a/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.test.ts b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.test.ts
new file mode 100644
index 0000000000000..accf133ac71b3
--- /dev/null
+++ b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.test.ts
@@ -0,0 +1,165 @@
+/*
+ * Copyright Elasticsearch B.V. and/or licensed to Elasticsearch B.V. under one
+ * or more contributor license agreements. Licensed under the Elastic License
+ * 2.0; you may not use this file except in compliance with the Elastic License
+ * 2.0.
+ */
+
+import type {
+  DiffableRuleTypes,
+  ThreeVersionsOf,
+} from '../../../../../../../../common/api/detection_engine';
+import {
+  ThreeWayDiffOutcome,
+  ThreeWayMergeOutcome,
+  MissingVersion,
+  ThreeWayDiffConflict,
+} from '../../../../../../../../common/api/detection_engine';
+import { ruleTypeDiffAlgorithm } from './rule_type_diff_algorithm';
+
+describe('ruleTypeDiffAlgorithm', () => {
+  it('returns current_version as merged output if there is no update - scenario AAA', () => {
+    const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+      base_version: 'query',
+      current_version: 'query',
+      target_version: 'query',
+    };
+
+    const result = ruleTypeDiffAlgorithm(mockVersions);
+
+    expect(result).toEqual(
+      expect.objectContaining({
+        merged_version: mockVersions.target_version,
+        diff_outcome: ThreeWayDiffOutcome.StockValueNoUpdate,
+        merge_outcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NONE,
+      })
+    );
+  });
+
+  it('returns current_version as merged output if current_version is different and there is no update - scenario ABA', () => {
+    // User can change rule type field between `query` and `saved_query` in the UI, no other rule types
+    const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+      base_version: 'query',
+      current_version: 'saved_query',
+      target_version: 'query',
+    };
+
+    const result = ruleTypeDiffAlgorithm(mockVersions);
+
+    expect(result).toEqual(
+      expect.objectContaining({
+        merged_version: mockVersions.target_version,
+        diff_outcome: ThreeWayDiffOutcome.CustomizedValueNoUpdate,
+        merge_outcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+      })
+    );
+  });
+
+  it('returns target_version as merged output if current_version is the same and there is an update - scenario AAB', () => {
+    // User can change rule type field between `query` and `saved_query` in the UI, no other rule types
+    const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+      base_version: 'query',
+      current_version: 'query',
+      target_version: 'saved_query',
+    };
+
+    const result = ruleTypeDiffAlgorithm(mockVersions);
+
+    expect(result).toEqual(
+      expect.objectContaining({
+        merged_version: mockVersions.target_version,
+        diff_outcome: ThreeWayDiffOutcome.StockValueCanUpdate,
+        merge_outcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+      })
+    );
+  });
+
+  it('returns current_version as merged output if current version is different but it matches the update - scenario ABB', () => {
+    // User can change rule type field between `query` and `saved_query` in the UI, no other rule types
+    const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+      base_version: 'query',
+      current_version: 'saved_query',
+      target_version: 'saved_query',
+    };
+
+    const result = ruleTypeDiffAlgorithm(mockVersions);
+
+    expect(result).toEqual(
+      expect.objectContaining({
+        merged_version: mockVersions.target_version,
+        diff_outcome: ThreeWayDiffOutcome.CustomizedValueSameUpdate,
+        merge_outcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+      })
+    );
+  });
+
+  it('returns current_version as merged output if all three versions are different - scenario ABC', () => {
+    // User can change rule type field between `query` and `saved_query` in the UI, no other rule types
+    // NOTE: This test case scenario is currently inaccessible via normal UI or API workflows, but the logic is covered just in case
+    const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+      base_version: 'query',
+      current_version: 'eql',
+      target_version: 'saved_query',
+    };
+
+    const result = ruleTypeDiffAlgorithm(mockVersions);
+
+    expect(result).toEqual(
+      expect.objectContaining({
+        merged_version: mockVersions.target_version,
+        diff_outcome: ThreeWayDiffOutcome.CustomizedValueCanUpdate,
+        merge_outcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+      })
+    );
+  });
+
+  describe('if base_version is missing', () => {
+    it('returns current_version as merged output if current_version and target_version are the same - scenario -AA', () => {
+      const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+        base_version: MissingVersion,
+        current_version: 'query',
+        target_version: 'query',
+      };
+
+      const result = ruleTypeDiffAlgorithm(mockVersions);
+
+      expect(result).toEqual(
+        expect.objectContaining({
+          has_base_version: false,
+          base_version: undefined,
+          merged_version: mockVersions.target_version,
+          diff_outcome: ThreeWayDiffOutcome.MissingBaseNoUpdate,
+          merge_outcome: ThreeWayMergeOutcome.Target,
+          conflict: ThreeWayDiffConflict.NONE,
+        })
+      );
+    });
+
+    it('returns target_version as merged output if current_version and target_version are different - scenario -AB', () => {
+      // User can change rule type field between `query` and `saved_query` in the UI, no other rule types
+      const mockVersions: ThreeVersionsOf<DiffableRuleTypes> = {
+        base_version: MissingVersion,
+        current_version: 'query',
+        target_version: 'saved_query',
+      };
+
+      const result = ruleTypeDiffAlgorithm(mockVersions);
+
+      expect(result).toEqual(
+        expect.objectContaining({
+          has_base_version: false,
+          base_version: undefined,
+          merged_version: mockVersions.target_version,
+          diff_outcome: ThreeWayDiffOutcome.MissingBaseCanUpdate,
+          merge_outcome: ThreeWayMergeOutcome.Target,
+          conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+        })
+      );
+    });
+  });
+});
diff --git a/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.ts b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.ts
new file mode 100644
index 0000000000000..0701d1e46d251
--- /dev/null
+++ b/x-pack/plugins/security_solution/server/lib/detection_engine/prebuilt_rules/logic/diff/calculation/algorithms/rule_type_diff_algorithm.ts
@@ -0,0 +1,98 @@
+/*
+ * Copyright Elasticsearch B.V. and/or licensed to Elasticsearch B.V. under one
+ * or more contributor license agreements. Licensed under the Elastic License
+ * 2.0; you may not use this file except in compliance with the Elastic License
+ * 2.0.
+ */
+
+import { assertUnreachable } from '../../../../../../../../common/utility_types';
+import type {
+  DiffableRuleTypes,
+  ThreeVersionsOf,
+  ThreeWayDiff,
+} from '../../../../../../../../common/api/detection_engine/prebuilt_rules';
+import {
+  determineDiffOutcome,
+  determineIfValueCanUpdate,
+  MissingVersion,
+  ThreeWayDiffConflict,
+  ThreeWayDiffOutcome,
+  ThreeWayMergeOutcome,
+} from '../../../../../../../../common/api/detection_engine/prebuilt_rules';
+
+export const ruleTypeDiffAlgorithm = <TValue extends DiffableRuleTypes>(
+  versions: ThreeVersionsOf<TValue>
+): ThreeWayDiff<TValue> => {
+  const {
+    base_version: baseVersion,
+    current_version: currentVersion,
+    target_version: targetVersion,
+  } = versions;
+
+  const diffOutcome = determineDiffOutcome(baseVersion, currentVersion, targetVersion);
+  const valueCanUpdate = determineIfValueCanUpdate(diffOutcome);
+
+  const hasBaseVersion = baseVersion !== MissingVersion;
+
+  const { mergeOutcome, conflict, mergedVersion } = mergeVersions({
+    targetVersion,
+    diffOutcome,
+  });
+
+  return {
+    has_base_version: hasBaseVersion,
+    base_version: hasBaseVersion ? baseVersion : undefined,
+    current_version: currentVersion,
+    target_version: targetVersion,
+    merged_version: mergedVersion,
+    merge_outcome: mergeOutcome,
+
+    diff_outcome: diffOutcome,
+    has_update: valueCanUpdate,
+    conflict,
+  };
+};
+
+interface MergeResult<TValue> {
+  mergeOutcome: ThreeWayMergeOutcome;
+  mergedVersion: TValue;
+  conflict: ThreeWayDiffConflict;
+}
+
+interface MergeArgs<TValue> {
+  targetVersion: TValue;
+  diffOutcome: ThreeWayDiffOutcome;
+}
+
+const mergeVersions = <TValue>({
+  targetVersion,
+  diffOutcome,
+}: MergeArgs<TValue>): MergeResult<TValue> => {
+  switch (diffOutcome) {
+    // Scenario -AA is treated as scenario AAA:
+    // https://github.com/elastic/kibana/pull/184889#discussion_r1636421293
+    case ThreeWayDiffOutcome.MissingBaseNoUpdate:
+    case ThreeWayDiffOutcome.StockValueNoUpdate:
+      return {
+        conflict: ThreeWayDiffConflict.NONE,
+        mergedVersion: targetVersion,
+        mergeOutcome: ThreeWayMergeOutcome.Target,
+      };
+    case ThreeWayDiffOutcome.CustomizedValueNoUpdate:
+    case ThreeWayDiffOutcome.CustomizedValueSameUpdate:
+    case ThreeWayDiffOutcome.StockValueCanUpdate:
+    // NOTE: This scenario is currently inaccessible via normal UI or API workflows, but the logic is covered just in case
+    case ThreeWayDiffOutcome.CustomizedValueCanUpdate:
+    // Scenario -AB is treated as scenario ABC:
+    // https://github.com/elastic/kibana/pull/184889#discussion_r1636421293
+    case ThreeWayDiffOutcome.MissingBaseCanUpdate: {
+      return {
+        mergedVersion: targetVersion,
+        mergeOutcome: ThreeWayMergeOutcome.Target,
+        conflict: ThreeWayDiffConflict.NON_SOLVABLE,
+      };
+    }
+    default:
+      return assertUnreachable(diffOutcome);
+  }
+};