diff --git a/src/vs/platform/userDataSync/common/extensionsMerge.ts b/src/vs/platform/userDataSync/common/extensionsMerge.ts
index 1202bbbba367e38a38531a626c087ef986db7569..96f79ba99e94e47b90f0777b515af97329f2ff49 100644
--- a/src/vs/platform/userDataSync/common/extensionsMerge.ts
+++ b/src/vs/platform/userDataSync/common/extensionsMerge.ts
@@ -74,10 +74,14 @@ export function merge(localExtensions: ISyncExtension[], remoteExtensions: ISync
 		const baseToRemote = compare(lastSyncExtensionsMap, remoteExtensionsMap, ignoredExtensionsSet);
 
 		const mergeAndUpdate = (key: string): void => {
-			const extension = remoteExtensionsMap.get(key)!;
-			extension.state = mergeExtensionState(localExtensionsMap.get(key)?.state, extension.state, lastSyncExtensionsMap?.get(key)?.state);
-			updated.push(massageOutgoingExtension(extension, key));
-			newRemoteExtensionsMap.set(key, extension);
+			const localExtension = localExtensionsMap.get(key)!;
+			const remoteExtension = remoteExtensionsMap.get(key)!;
+			// merge extension state only when version matches and local extension has state
+			if (remoteExtension.version === localExtension.version && localExtension.state) {
+				remoteExtension.state = mergeExtensionState(localExtension.state, remoteExtension.state, lastSyncExtensionsMap?.get(key)?.state);
+			}
+			updated.push(massageOutgoingExtension(remoteExtension, key));
+			newRemoteExtensionsMap.set(key, remoteExtension);
 		};
 
 		// Remotely removed extension.
@@ -183,18 +187,7 @@ function compare(from: Map<string, ISyncExtension> | null, to: Map<string, ISync
 	return { added, removed, updated };
 }
 
-function mergeExtensionState(local: IStringDictionary<any> | undefined, remote: IStringDictionary<any> | undefined, base: IStringDictionary<any> | undefined): IStringDictionary<any> | undefined {
-	if (!local && !remote && !base) {
-		return undefined;
-	}
-	if (local && !remote && !base) {
-		return local;
-	}
-	if (remote && !local && !base) {
-		return remote;
-	}
-
-	local = local || {};
+function mergeExtensionState(local: IStringDictionary<any>, remote: IStringDictionary<any> | undefined, base: IStringDictionary<any> | undefined): IStringDictionary<any> | undefined {
 	const merged: IStringDictionary<any> = deepClone(local);
 	if (remote) {
 		const baseToRemote = base ? compareExtensionState(base, remote) : { added: Object.keys(remote).reduce((r, k) => { r.add(k); return r; }, new Set<string>()), removed: new Set<string>(), updated: new Set<string>() };
diff --git a/src/vs/platform/userDataSync/common/extensionsSync.ts b/src/vs/platform/userDataSync/common/extensionsSync.ts
index eb3a2825926e11ff95c2766249abf2aee204052c..df6dfb1fa4fb37ac70fc3d7bc385cd07b984c057 100644
--- a/src/vs/platform/userDataSync/common/extensionsSync.ts
+++ b/src/vs/platform/userDataSync/common/extensionsSync.ts
@@ -450,13 +450,13 @@ export class ExtensionsSynchroniser extends AbstractSynchroniser implements IUse
 					syncExntesion.installed = true;
 				}
 				const keys = this.storageKeysSyncRegistryService.getExtensioStorageKeys({ id: identifier.id, version: manifest.version });
-				try {
-					const extensionStorageValue = this.storageService.get(identifier.id, StorageScope.GLOBAL);
-					syncExntesion.state = keys.length && extensionStorageValue
-						? JSON.parse(extensionStorageValue, (key, value) => !key || keys.includes(key) ? value : undefined)
-						: undefined;
-				} catch (error) {
-					this.logService.info(`${this.syncResourceLogLabel}: Error while parsing extension state`, getErrorMessage(error));
+				if (keys) {
+					const extensionStorageValue = this.storageService.get(identifier.id, StorageScope.GLOBAL) || '{}';
+					try {
+						syncExntesion.state = JSON.parse(extensionStorageValue, (key, value) => !key || keys.includes(key) ? value : undefined);
+					} catch (error) {
+						this.logService.info(`${this.syncResourceLogLabel}: Error while parsing extension state`, getErrorMessage(error));
+					}
 				}
 				return syncExntesion;
 			});
diff --git a/src/vs/platform/userDataSync/common/storageKeys.ts b/src/vs/platform/userDataSync/common/storageKeys.ts
index 00d8a4d59d0856c158b3a8b80535ec67fa627b6c..5ffe0786f054e65fd3c9f74aba4c9d430495023f 100644
--- a/src/vs/platform/userDataSync/common/storageKeys.ts
+++ b/src/vs/platform/userDataSync/common/storageKeys.ts
@@ -76,7 +76,7 @@ export interface IStorageKeysSyncRegistryService {
 	/**
 	 * Returns storage keys of the given extension that has to be synchronized.
 	 */
-	getExtensioStorageKeys(extension: IExtensionIdWithVersion): ReadonlyArray<string>;
+	getExtensioStorageKeys(extension: IExtensionIdWithVersion): ReadonlyArray<string> | undefined;
 }
 
 export abstract class AbstractStorageKeysSyncRegistryService extends Disposable implements IStorageKeysSyncRegistryService {
@@ -103,8 +103,8 @@ export abstract class AbstractStorageKeysSyncRegistryService extends Disposable
 		this._register(toDisposable(() => this._storageKeys.clear()));
 	}
 
-	getExtensioStorageKeys(extension: IExtensionIdWithVersion): ReadonlyArray<string> {
-		return this._extensionsStorageKeys.get(ExtensionIdWithVersion.toKey(extension)) || [];
+	getExtensioStorageKeys(extension: IExtensionIdWithVersion): ReadonlyArray<string> | undefined {
+		return this._extensionsStorageKeys.get(ExtensionIdWithVersion.toKey(extension));
 	}
 
 	protected updateExtensionStorageKeys(extension: IExtensionIdWithVersion, keys: string[]): void {
diff --git a/src/vs/workbench/electron-sandbox/sandbox.simpleservices.ts b/src/vs/workbench/electron-sandbox/sandbox.simpleservices.ts
index 94ace05dec671af3a002b02ed710b269f70825d6..a377564b02d59be22987e2061fb33c7c00357f3d 100644
--- a/src/vs/workbench/electron-sandbox/sandbox.simpleservices.ts
+++ b/src/vs/workbench/electron-sandbox/sandbox.simpleservices.ts
@@ -731,7 +731,7 @@ class SimpleIStorageKeysSyncRegistryService implements IStorageKeysSyncRegistryS
 
 	extensionsStorageKeys = [];
 
-	getExtensioStorageKeys(): [] { return []; }
+	getExtensioStorageKeys() { return undefined; }
 
 	registerExtensionStorageKeys(): void { }
 }