diff --git a/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/make.defaults b/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/make.defaults
index 60494bf9f27..34e2a6cbbbe 100644
--- a/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/make.defaults
+++ b/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/make.defaults
@@ -91,13 +91,11 @@ CONFIG_PROTECT="
 
 # Remove libtool .la files for non-plugin libraries.
 # Remove Gentoo init files since we use systemd.
-# Remove build-id, there is some issue with it causing collisions.
 # Remove default files from sys-power/acpid.
 # Do not install default repos.conf, we always put repository configuration in /etc.
 INSTALL_MASK="
   /usr/lib*/*.la
   /etc/init.d /etc/conf.d /etc/user/conf.d /etc/user/init.d
-  /usr/lib/debug/.build-id
   /etc/acpi
   /usr/share/portage/config/repos.conf
 "
diff --git a/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/profile.bashrc b/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/profile.bashrc
index 6165f45d053..c3299e99058 100644
--- a/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/profile.bashrc
+++ b/sdk_container/src/third_party/coreos-overlay/profiles/coreos/base/profile.bashrc
@@ -124,6 +124,19 @@ cros_pre_pkg_setup_sysroot_build_bin_dir() {
 	PATH+=":${CROS_BUILD_BOARD_BIN}"
 }
 
+# Remove any debug build-id symlinks that are broken because of INSTALL_MASK,
+# and also remove their associated debug files to avoid wasting space.
+cros_post_pkg_preinst_rm_masked_debug_files() {
+	local link debug dir=${ED}/usr/lib/debug
+	[[ -d ${dir}/.build-id ]] || return
+	while read -d $'\n' -r link; do
+		debug=$(realpath "${link}.debug") || die
+		rm -f -- "${link}" "${link}.debug" "${debug}" || die
+	done < <(find "${dir}"/.build-id -xtype l ! -name "*.debug")
+	# -delete implies -depth so entire empty trees are deleted.
+	find "${dir}" -type d -empty -delete || die
+}
+
 # Avoid modifications of the preexisting users - these are provided by
 # our baselayout and usermod can't change anything there anyway (it
 # complains that the user is not in /etc/passwd).
diff --git a/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/Manifest b/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/Manifest
index 8c30e5b987e..f6ac62235ea 100644
--- a/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/Manifest
+++ b/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/Manifest
@@ -1 +1 @@
-DIST flatcar-baselayout-bb76459c3338ce0e76c4e48d545795bfbc9dbfd9.tar.gz 37869 BLAKE2B 2d7ca48708e4eb3dc2f68ed6fb2b86bb9a903031e3249f55f8b8a0e1d6d08ef35caa40a50560c87bd0bad2c69fc9089425469a56b66a9c9ac9eee69bc83fbe5d SHA512 4f294d82eec5d53b1b444561f01b33b768e88c44ef7d8d3d7a5ce12a42c06048656a9f8bbdcb3a2c4751eb3f92639ccbdbb6a316e35b85a242476e1de5cd3fe1
+DIST flatcar-baselayout-e721701eb2847df30d64b34a194f205ab3e5e40f.tar.gz 37838 BLAKE2B 96f8d39319fbaf9949eda64ff3a55731578f9e71ffffe07e67c253774af86bc33e798c5e23b3836dfae26912c34b1cd25da76405633f3d662efb7e1fdad617b8 SHA512 c142672f275914ca7e8ba39b3bdd9041ed221dcc81187a8c309569b7d4c0902527a12de4295992cfa2c21202c2c6bce5a6c7ab2a9ed2026fa50674878a147c67
diff --git a/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-3.6.8-r20.ebuild b/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-3.6.8-r21.ebuild
similarity index 100%
rename from sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-3.6.8-r20.ebuild
rename to sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-3.6.8-r21.ebuild
diff --git a/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-9999.ebuild b/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-9999.ebuild
index 403d3bf4979..7d8dcdb87c5 100644
--- a/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-9999.ebuild
+++ b/sdk_container/src/third_party/coreos-overlay/sys-apps/baselayout/baselayout-9999.ebuild
@@ -12,7 +12,7 @@ if [[ ${PV} == 9999 ]]; then
 	EGIT_REPO_URI="https://github.com/flatcar/baselayout.git"
 	inherit git-r3
 else
-	EGIT_VERSION="bb76459c3338ce0e76c4e48d545795bfbc9dbfd9" # flatcar-master
+	EGIT_VERSION="e721701eb2847df30d64b34a194f205ab3e5e40f" # chewi/debug-dirs
 	SRC_URI="https://github.com/flatcar/baselayout/archive/${EGIT_VERSION}.tar.gz -> flatcar-${PN}-${EGIT_VERSION}.tar.gz"
 	S="${WORKDIR}/${PN}-${EGIT_VERSION}"
 	KEYWORDS="amd64 arm64"