diff --git a/cms/djangoapps/contentstore/helpers.py b/cms/djangoapps/contentstore/helpers.py
index 0d66070b1120..3ca67b0cb031 100644
--- a/cms/djangoapps/contentstore/helpers.py
+++ b/cms/djangoapps/contentstore/helpers.py
@@ -336,8 +336,14 @@ def _import_xml_node_to_parent(
     new_xblock = store.update_item(temp_xblock, user_id, allow_not_found=True)
     parent_xblock.children.append(new_xblock.location)
     store.update_item(parent_xblock, user_id)
-    for child_node in child_nodes:
-        _import_xml_node_to_parent(child_node, new_xblock, store, user_id=user_id)
+    if new_xblock.scope_ids.block_type == "library_content":
+        # Special case handling for library content. If we need this for other blocks in the future, it can be made into
+        # an API, and we'd call new_block.studio_post_paste() instead of this code.
+        # In this case, we want to pull the children from the library and let library_tools assign their IDs.
+        new_xblock.sync_from_library(upgrade_to_latest=False)
+    else:
+        for child_node in child_nodes:
+            _import_xml_node_to_parent(child_node, new_xblock, store, user_id=user_id)
     return new_xblock
 
 
diff --git a/cms/djangoapps/contentstore/views/tests/test_clipboard_paste.py b/cms/djangoapps/contentstore/views/tests/test_clipboard_paste.py
index 170c98d1eb09..011c9a10e561 100644
--- a/cms/djangoapps/contentstore/views/tests/test_clipboard_paste.py
+++ b/cms/djangoapps/contentstore/views/tests/test_clipboard_paste.py
@@ -4,12 +4,19 @@
 APIs.
 """
 import ddt
+from django.test import LiveServerTestCase
 from opaque_keys.edx.keys import UsageKey
 from rest_framework.test import APIClient
-from xmodule.modulestore.django import contentstore
+from organizations.models import Organization
+from xmodule.modulestore.django import contentstore, modulestore
 from xmodule.modulestore.tests.django_utils import ModuleStoreTestCase, upload_file_to_course
 from xmodule.modulestore.tests.factories import BlockFactory, CourseFactory, ToyCourseFactory
 
+from cms.djangoapps.contentstore.utils import reverse_usage_url
+from openedx.core.lib.blockstore_api.tests.base import BlockstoreAppTestMixin
+from openedx.core.djangoapps.content_libraries import api as library_api
+from blockstore.apps import api as blockstore_api
+
 CLIPBOARD_ENDPOINT = "/api/content-staging/v1/clipboard/"
 XBLOCK_ENDPOINT = "/xblock/"
 
@@ -110,7 +117,7 @@ def test_copy_and_paste_component(self, block_args):
         """
         Test copying a component (XBlock) from one course into another
         """
-        source_course = CourseFactory.create(display_name='Destination Course')
+        source_course = CourseFactory.create(display_name='Source Course')
         source_block = BlockFactory.create(parent_location=source_course.location, **block_args)
 
         dest_course = CourseFactory.create(display_name='Destination Course')
@@ -205,3 +212,97 @@ def test_paste_with_assets(self):
         source_pic2_hash = contentstore().find(source_course.id.make_asset_key("asset", "picture2.jpg")).content_digest
         dest_pic2_hash = contentstore().find(dest_course_key.make_asset_key("asset", "picture2.jpg")).content_digest
         assert source_pic2_hash != dest_pic2_hash  # Because there was a conflict, this file was unchanged.
+
+
+class ClipboardLibraryContentPasteTestCase(BlockstoreAppTestMixin, LiveServerTestCase, ModuleStoreTestCase):
+    """
+    Test Clipboard Paste functionality with library content
+    """
+
+    def setUp(self):
+        """
+        Set up a v2 Content Library and a library content block
+        """
+        super().setUp()
+        self.client = APIClient()
+        self.client.login(username=self.user.username, password=self.user_password)
+        self.store = modulestore()
+        # Create a content library:
+        library = library_api.create_library(
+            collection_uuid=blockstore_api.create_collection("Collection").uuid,
+            library_type=library_api.COMPLEX,
+            org=Organization.objects.create(name="Test Org", short_name="CL-TEST"),
+            slug="lib",
+            title="Library",
+        )
+        # Populate it with a problem:
+        problem_key = library_api.create_library_block(library.key, "problem", "p1").usage_key
+        library_api.set_library_block_olx(problem_key, """
+        <problem display_name="MCQ" max_attempts="1">
+            <multiplechoiceresponse>
+                <label>Q</label>
+                <choicegroup type="MultipleChoice">
+                    <choice correct="false">Wrong</choice>
+                    <choice correct="true">Right</choice>
+                </choicegroup>
+            </multiplechoiceresponse>
+        </problem>
+        """)
+        library_api.publish_changes(library.key)
+
+        # Create a library content block (lc), point it out our library, and sync it.
+        self.course = CourseFactory.create(display_name='Course')
+        self.orig_lc_block = BlockFactory.create(
+            parent=self.course,
+            category="library_content",
+            source_library_id=str(library.key),
+            display_name="LC Block",
+            publish_item=False,
+        )
+        self.dest_lc_block = None
+
+        self._sync_lc_block_from_library('orig_lc_block')
+        orig_child = self.store.get_item(self.orig_lc_block.children[0])
+        assert orig_child.display_name == "MCQ"
+
+    def test_paste_library_content_block(self):
+        """
+        Test the special handling of copying and pasting library content
+        """
+        # Copy a library content block that has children:
+        copy_response = self.client.post(CLIPBOARD_ENDPOINT, {
+            "usage_key": str(self.orig_lc_block.location)
+        }, format="json")
+        assert copy_response.status_code == 200
+
+        # Paste the Library content block:
+        paste_response = self.client.post(XBLOCK_ENDPOINT, {
+            "parent_locator": str(self.course.location),
+            "staged_content": "clipboard",
+        }, format="json")
+        assert paste_response.status_code == 200
+        dest_lc_block_key = UsageKey.from_string(paste_response.json()["locator"])
+
+        # Get the ID of the new child:
+        self.dest_lc_block = self.store.get_item(dest_lc_block_key)
+        dest_child = self.store.get_item(self.dest_lc_block.children[0])
+        assert dest_child.display_name == "MCQ"
+
+        # Importantly, the ID of the child must not changed when the library content is synced.
+        # Otherwise, user state saved against this child will be lost when it syncs.
+        self._sync_lc_block_from_library('dest_lc_block')
+        updated_dest_child = self.store.get_item(self.dest_lc_block.children[0])
+        assert dest_child.location == updated_dest_child.location
+
+    def _sync_lc_block_from_library(self, attr_name):
+        """
+        Helper method to "sync" a Library Content Block by [re-]fetching its
+        children from the library.
+        """
+        usage_key = getattr(self, attr_name).location
+        # It's easiest to do this via the REST API:
+        handler_url = reverse_usage_url('preview_handler', usage_key, kwargs={'handler': 'upgrade_and_sync'})
+        response = self.client.post(handler_url)
+        assert response.status_code == 200
+        # Now reload the block and make sure the child is in place
+        setattr(self, attr_name, self.store.get_item(usage_key))  # we must reload after upgrade_and_sync
diff --git a/openedx/core/djangoapps/content_libraries/api.py b/openedx/core/djangoapps/content_libraries/api.py
index 10383de336e5..76cbde89082e 100644
--- a/openedx/core/djangoapps/content_libraries/api.py
+++ b/openedx/core/djangoapps/content_libraries/api.py
@@ -91,7 +91,15 @@
 from edx_rest_api_client.client import OAuthAPIClient
 
 from openedx.core.djangoapps.content_libraries import permissions
-from openedx.core.djangoapps.content_libraries.constants import DRAFT_NAME, COMPLEX
+# pylint: disable=unused-import
+from openedx.core.djangoapps.content_libraries.constants import (
+    ALL_RIGHTS_RESERVED,
+    CC_4_BY,
+    COMPLEX,
+    DRAFT_NAME,
+    PROBLEM,
+    VIDEO,
+)
 from openedx.core.djangoapps.content_libraries.library_bundle import LibraryBundle
 from openedx.core.djangoapps.content_libraries.models import (
     ContentLibrary,
@@ -387,8 +395,15 @@ def get_library(library_key):
 
 
 def create_library(
-        collection_uuid, library_type, org, slug, title, description, allow_public_learning, allow_public_read,
-        library_license,
+        collection_uuid,
+        org,
+        slug,
+        title,
+        description="",
+        allow_public_learning=False,
+        allow_public_read=False,
+        library_license=ALL_RIGHTS_RESERVED,
+        library_type=COMPLEX,
 ):
     """
     Create a new content library.
@@ -405,6 +420,8 @@ def create_library(
 
     allow_public_read: Allow anyone to view blocks (including source) in Studio?
 
+    library_type: Deprecated parameter, not really used. Set to COMPLEX.
+
     Returns a ContentLibraryMetadata instance.
     """
     assert isinstance(collection_uuid, UUID)
diff --git a/openedx/core/djangoapps/content_tagging/rest_api/v1/tests/test_views.py b/openedx/core/djangoapps/content_tagging/rest_api/v1/tests/test_views.py
index bfaf9760c4a1..c9026dbdbddb 100644
--- a/openedx/core/djangoapps/content_tagging/rest_api/v1/tests/test_views.py
+++ b/openedx/core/djangoapps/content_tagging/rest_api/v1/tests/test_views.py
@@ -31,7 +31,6 @@
 from openedx.core.djangoapps.content_libraries.api import (
     AccessLevel,
     create_library,
-    COMPLEX,
     set_library_user_permissions,
 )
 from openedx.core.djangoapps.content_tagging.models import TaxonomyOrg
@@ -104,12 +103,8 @@ def _setUp_library(self):
             collection_uuid=self.collection.uuid,
             org=self.orgA,
             slug="lib_a",
-            library_type=COMPLEX,
             title="Library Org A",
             description="This is a library from Org A",
-            allow_public_learning=False,
-            allow_public_read=False,
-            library_license="",
         )
 
     def _setUp_users(self):