diff --git a/app/views/shared/issuable/_sidebar.html.haml b/app/views/shared/issuable/_sidebar.html.haml
index 45065ac5920..bc638e994f3 100644
--- a/app/views/shared/issuable/_sidebar.html.haml
+++ b/app/views/shared/issuable/_sidebar.html.haml
@@ -136,7 +136,7 @@
             - selected_labels.each do |label|
               = hidden_field_tag "#{issuable.to_ability_name}[label_names][]", label.id, id: nil
             .dropdown
-              %button.dropdown-menu-toggle.js-label-select.js-multiselect.js-label-sidebar-dropdown{ type: "button", data: {toggle: "dropdown", default_label: "Labels", field_name: "#{issuable.to_ability_name}[label_names][]", ability_name: issuable.to_ability_name, show_no: "true", show_any: "true", namespace_path: @project.try(:namespace).try(:path), project_path: @project.try(:path), issue_update: issuable_json_path(issuable), labels: (namespace_project_labels_path(@project.namespace, @project, :json) if @project) } }
+              %button.dropdown-menu-toggle.js-label-select.js-multiselect.js-label-sidebar-dropdown{ type: "button", data: {toggle: "dropdown", default_label: "Labels", field_name: "#{issuable.to_ability_name}[label_names][]", ability_name: issuable.to_ability_name, show_no: "true", show_any: "true", namespace_path: @project.try(:namespace).try(:full_path), project_path: @project.try(:path), issue_update: issuable_json_path(issuable), labels: (namespace_project_labels_path(@project.namespace, @project, :json) if @project) } }
                 %span.dropdown-toggle-text{ class: ("is-default" if selected_labels.empty?) }
                   = multi_label_name(selected_labels, "Labels")
                 = icon('chevron-down', 'aria-hidden': 'true')
diff --git a/changelogs/unreleased/30667-creating-new-label-on-new-issue-causing-bug.yml b/changelogs/unreleased/30667-creating-new-label-on-new-issue-causing-bug.yml
new file mode 100644
index 00000000000..ce0ea69211e
--- /dev/null
+++ b/changelogs/unreleased/30667-creating-new-label-on-new-issue-causing-bug.yml
@@ -0,0 +1,4 @@
+---
+title: Fix label creation from issuable for subgroup projects
+merge_request:
+author:
diff --git a/spec/features/issues/issue_sidebar_spec.rb b/spec/features/issues/issue_sidebar_spec.rb
index 8589945ab74..3bdd12b4853 100644
--- a/spec/features/issues/issue_sidebar_spec.rb
+++ b/spec/features/issues/issue_sidebar_spec.rb
@@ -3,7 +3,8 @@ require 'rails_helper'
 feature 'Issue Sidebar', feature: true do
   include MobileHelpers
 
-  let(:project) { create(:project, :public) }
+  let(:group) { create(:group, :nested) }
+  let(:project) { create(:project, :public, namespace: group) }
   let(:issue) { create(:issue, project: project) }
   let!(:user) { create(:user)}
   let!(:label) { create(:label, project: project, title: 'bug') }