diff --git a/app/services/labels/transfer_service.rb b/app/services/labels/transfer_service.rb
index f91b3724aef..514679ed29d 100644
--- a/app/services/labels/transfer_service.rb
+++ b/app/services/labels/transfer_service.rb
@@ -4,48 +4,75 @@
 #
 module Labels
   class TransferService
-    def initialize(current_user, group, project)
+    def initialize(current_user, old_group, project)
       @current_user = current_user
-      @group = group
+      @old_group = old_group
       @project = project
     end
 
     def execute
-      return unless group.present?
+      return unless old_group.present?
 
       Label.transaction do
-        labels_to_transfer = Label.where(id: label_links.select(:label_id))
-
         labels_to_transfer.find_each do |label|
           new_label_id = find_or_create_label!(label)
 
           next if new_label_id == label.id
 
-          LabelLink.where(label_id: label.id).update_all(label_id: new_label_id)
-          LabelPriority.where(project_id: project.id, label_id: label.id).update_all(label_id: new_label_id)
+          update_label_links(group_labels_applied_to_issues, old_label_id: label.id, new_label_id: new_label_id)
+          update_label_links(group_labels_applied_to_merge_requests, old_label_id: label.id, new_label_id: new_label_id)
+          update_label_priorities(old_label_id: label.id, new_label_id: new_label_id)
         end
       end
     end
 
     private
 
-    attr_reader :current_user, :group, :project
+    attr_reader :current_user, :old_group, :project
 
-    def label_links
-      label_link_ids = []
-      label_link_ids << LabelLink.where(target: project.issues, label: group.labels).select(:id)
-      label_link_ids << LabelLink.where(target: project.merge_requests, label: group.labels).select(:id)
+    def labels_to_transfer
+      label_ids = []
+      label_ids << group_labels_applied_to_issues.select(:id)
+      label_ids << group_labels_applied_to_merge_requests.select(:id)
 
-      union = Gitlab::SQL::Union.new(label_link_ids)
+      union = Gitlab::SQL::Union.new(label_ids)
 
-      LabelLink.where("label_links.id IN (#{union.to_sql})")
+      Label.where("labels.id IN (#{union.to_sql})").reorder(nil).uniq
+    end
+
+    def group_labels_applied_to_issues
+      Label.joins(:issues).
+        where(
+          issues: { project_id: project.id },
+          labels: { type: 'GroupLabel', group_id: old_group.id }
+        )
+    end
+
+    def group_labels_applied_to_merge_requests
+      Label.joins(:merge_requests).
+        where(
+          merge_requests: { target_project_id: project.id },
+          labels: { type: 'GroupLabel', group_id: old_group.id }
+        )
     end
 
     def find_or_create_label!(label)
-      params = label.attributes.slice('title', 'description', 'color')
+      params    = label.attributes.slice('title', 'description', 'color')
       new_label = FindOrCreateService.new(current_user, project, params).execute
 
       new_label.id
     end
+
+    def update_label_links(labels, old_label_id:, new_label_id:)
+      LabelLink.joins(:label).
+        merge(labels).
+        where(label_id: old_label_id).
+        update_all(label_id: new_label_id)
+    end
+
+    def update_label_priorities(old_label_id:, new_label_id:)
+      LabelPriority.where(project_id: project.id, label_id: old_label_id).
+        update_all(label_id: new_label_id)
+    end
   end
 end
diff --git a/spec/services/labels/transfer_service_spec.rb b/spec/services/labels/transfer_service_spec.rb
index cb09c16698a..ddf3527dc0f 100644
--- a/spec/services/labels/transfer_service_spec.rb
+++ b/spec/services/labels/transfer_service_spec.rb
@@ -5,33 +5,38 @@ describe Labels::TransferService, services: true do
     let(:user)    { create(:user) }
     let(:group_1) { create(:group) }
     let(:group_2) { create(:group) }
-    let(:project) { create(:project, namespace: group_2) }
+    let(:group_3) { create(:group) }
+    let(:project_1) { create(:project, namespace: group_2) }
+    let(:project_2) { create(:project, namespace: group_3) }
 
     let(:group_label_1) { create(:group_label, group: group_1, name: 'Group Label 1') }
     let(:group_label_2) { create(:group_label, group: group_1, name: 'Group Label 2') }
     let(:group_label_3) { create(:group_label, group: group_1, name: 'Group Label 3') }
     let(:group_label_4) { create(:group_label, group: group_2, name: 'Group Label 4') }
-    let(:project_label_1) { create(:label, project: project, name: 'Project Label 1') }
+    let(:group_label_5) { create(:group_label, group: group_3, name: 'Group Label 5') }
+    let(:project_label_1) { create(:label, project: project_1, name: 'Project Label 1') }
 
-    subject(:service) { described_class.new(user, group_1, project) }
+    subject(:service) { described_class.new(user, group_1, project_1) }
 
     before do
-      create(:labeled_issue, project: project, labels: [group_label_1])
-      create(:labeled_issue, project: project, labels: [group_label_4])
-      create(:labeled_issue, project: project, labels: [project_label_1])
-      create(:labeled_merge_request, source_project: project, labels: [group_label_1, group_label_2])
+      create(:labeled_issue, project: project_1, labels: [group_label_1])
+      create(:labeled_issue, project: project_1, labels: [group_label_4])
+      create(:labeled_issue, project: project_1, labels: [project_label_1])
+      create(:labeled_issue, project: project_2, labels: [group_label_5])
+      create(:labeled_merge_request, source_project: project_1, labels: [group_label_1, group_label_2])
+      create(:labeled_merge_request, source_project: project_2, labels: [group_label_5])
     end
 
     it 'recreates the missing group labels at project level' do
-      expect { service.execute }.to change(project.labels, :count).by(2)
+      expect { service.execute }.to change(project_1.labels, :count).by(2)
     end
 
     it 'recreates label priorities related to the missing group labels' do
-      create(:label_priority, project: project, label: group_label_1, priority: 1)
+      create(:label_priority, project: project_1, label: group_label_1, priority: 1)
 
       service.execute
 
-      new_project_label = project.labels.find_by(title: group_label_1.title)
+      new_project_label = project_1.labels.find_by(title: group_label_1.title)
       expect(new_project_label.id).not_to eq group_label_1.id
       expect(new_project_label.priorities).not_to be_empty
     end
@@ -39,13 +44,13 @@ describe Labels::TransferService, services: true do
     it 'does not recreate missing group labels that are not applied to issues or merge requests' do
       service.execute
 
-      expect(project.labels.where(title: group_label_3.title)).to be_empty
+      expect(project_1.labels.where(title: group_label_3.title)).to be_empty
     end
 
     it 'does not recreate missing group labels that already exist in the project group' do
       service.execute
 
-      expect(project.labels.where(title: group_label_4.title)).to be_empty
+      expect(project_1.labels.where(title: group_label_4.title)).to be_empty
     end
   end
 end