diff --git a/Makefile b/Makefile
index 5d87f944d56..742f543786a 100644
--- a/Makefile
+++ b/Makefile
@@ -421,6 +421,7 @@ $(REPORTS):
 	-mkdir -p $(REPORTS)
 
 test-onprem:
+	WORK_DIR=$(shell podman inspect $(shell podman ps | grep /assisted-service | cut -f1  -d" ") | jq -r  '.[].GraphDriver.Data.UpperDir')/data \
 	INVENTORY=127.0.0.1:8090 \
 	DB_HOST=127.0.0.1 \
 	DB_PORT=5432 \
diff --git a/subsystem/cluster_test.go b/subsystem/cluster_test.go
index 2c4c9819cde..4ef92c67845 100644
--- a/subsystem/cluster_test.go
+++ b/subsystem/cluster_test.go
@@ -36,6 +36,7 @@ import (
 	"github.com/openshift/assisted-service/models"
 	"github.com/openshift/assisted-service/pkg/auth"
 	"github.com/openshift/assisted-service/pkg/conversions"
+	"github.com/openshift/assisted-service/pkg/s3wrapper"
 )
 
 // #nosec
@@ -3234,6 +3235,71 @@ var _ = Describe("Update cluster with OLM operators", func() {
 	})
 })
 
+var _ = FDescribe("Verify ISO is deleted on cluster de-registration", func() {
+	var (
+		ctx       context.Context = context.Background()
+		clusterID strfmt.UUID
+	)
+
+	BeforeEach(func() {
+		var err error
+		clusterID, err = registerCluster(ctx, userBMClient, "test-deregister-cluster", pullSecret)
+		Expect(err).NotTo(HaveOccurred())
+	})
+
+	AfterEach(func() {
+		clearDB()
+	})
+
+	Context("Deregister cluster deletes cluster resources test", func() {
+		if Options.Storage != "filesystem" || Options.DeployTarget != "onprem" {
+			return
+		}
+
+		It("Deregister cluster deletes discovery image from Filesystem test", func() {
+			By("Generate discovery image for cluster")
+			imageType := models.ImageTypeMinimalIso
+			_, err := userBMClient.Installer.GenerateClusterISO(ctx, &installer.GenerateClusterISOParams{
+				ClusterID: clusterID,
+				ImageCreateParams: &models.ImageCreateParams{
+					ImageType: imageType,
+				},
+			})
+
+			Expect(err).NotTo(HaveOccurred())
+			verifyEventExistence(clusterID, fmt.Sprintf("Image type is \"%s\"", imageType))
+
+			By("verify discovery-image existence")
+			file, err := ioutil.TempFile("", "tmp")
+			if err != nil {
+				log.Fatal(err)
+			}
+			defer os.Remove(file.Name())
+			_, err = userBMClient.Installer.DownloadClusterISO(ctx, &installer.DownloadClusterISOParams{ClusterID: clusterID}, file)
+			Expect(err).NotTo(HaveOccurred())
+			fsClient := s3wrapper.NewFSClient(Options.WorkDir, log, nil, nil, nil, 0)
+			discoveryImage := fmt.Sprintf("%s.iso", fmt.Sprintf(s3wrapper.DiscoveryImageTemplate, clusterID))
+			exists, err := fsClient.DoesObjectExist(ctx, discoveryImage)
+			Expect(err).NotTo(HaveOccurred())
+			Expect(exists).To(BeTrue())
+
+			By("deregister cluster")
+			_, err = userBMClient.Installer.DeregisterCluster(ctx, &installer.DeregisterClusterParams{
+				ClusterID: clusterID,
+			})
+			Expect(err).NotTo(HaveOccurred())
+
+			By("verify discovery-image cannot be downloaded")
+			_, err = userBMClient.Installer.DownloadClusterISO(ctx, &installer.DownloadClusterISOParams{ClusterID: clusterID}, file)
+			Expect(err).To(HaveOccurred())
+			exists, err = fsClient.DoesObjectExist(ctx, discoveryImage)
+			Expect(err).NotTo(HaveOccurred())
+			Expect(exists).To(BeFalse())
+
+		})
+	})
+})
+
 func registerHostsAndSetRoles(clusterID strfmt.UUID, numHosts int) []*models.Host {
 	ctx := context.Background()
 	hosts := make([]*models.Host, 0)
diff --git a/subsystem/subsystem_suite_test.go b/subsystem/subsystem_suite_test.go
index 25da17ef54a..d03448d651b 100644
--- a/subsystem/subsystem_suite_test.go
+++ b/subsystem/subsystem_suite_test.go
@@ -50,6 +50,7 @@ var Options struct {
 	OCMHost              string        `envconfig:"OCM_HOST"`
 	DeployTarget         string        `envconfig:"DEPLOY_TARGET" default:"k8s"`
 	Storage              string        `envconfig:"STORAGE" default:""`
+	WorkDir              string        `envconfig:"WORK_DIR" default:"/data/"`
 	Namespace            string        `envconfig:"NAMESPACE" default:"assisted-installer"`
 	EnableKubeAPI        bool          `envconfig:"ENABLE_KUBE_API" default:"false"`
 	WithAMSSubscriptions bool          `envconfig:"WITH_AMS_SUBSCRIPTIONS" default:"false"`