diff --git a/Source/Engine/Tests/TestPrefabs.cpp b/Source/Engine/Tests/TestPrefabs.cpp
new file mode 100644
index 000000000..4073f1fbe
--- /dev/null
+++ b/Source/Engine/Tests/TestPrefabs.cpp
@@ -0,0 +1,128 @@
+// Copyright (c) 2012-2022 Wojciech Figat. All rights reserved.
+
+#include "Engine/Content/Content.h"
+#include "Engine/Content/AssetReference.h"
+#include "Engine/Core/Log.h"
+#include "Engine/Level/Actor.h"
+#include "Engine/Level/Actors/EmptyActor.h"
+#include "Engine/Level/Prefabs/Prefab.h"
+#include "Engine/Level/Prefabs/PrefabManager.h"
+#include "Engine/Scripting/ScriptingObjectReference.h"
+
+#include <ThirdParty/catch2/catch.hpp>
+
+TEST_CASE("Prefabs")
+{
+    SECTION("Virtual Prefab")
+    {
+        auto* prefab = Content::CreateVirtualAsset<Prefab>();
+        REQUIRE(prefab);
+        Content::DeleteAsset(prefab);
+    }
+    SECTION("Test Repareting in Nested Prefab")
+    {
+        // https://github.com/FlaxEngine/FlaxEngine/issues/718
+
+        // Create Prefab B with two children attached to the root
+        AssetReference<Prefab> prefabB = Content::CreateVirtualAsset<Prefab>();
+        REQUIRE(prefabB);
+        Guid id;
+        Guid::Parse("665bb01c49a3370f14a023b5395de261", id);
+        prefabB->ChangeID(id);
+        auto prefabBInit = prefabB->Init(Prefab::TypeName,
+                                         "["
+                                         "{"
+                                         "\"ID\": \"eec6b9644492fbca1a6ab0a7904a557e\","
+                                         "\"TypeName\": \"FlaxEngine.EmptyActor\","
+                                         "\"Name\": \"Prefab B.Root\""
+                                         "},"
+                                         "{"
+                                         "\"ID\": \"124540354d2d0a1decbb3ebfc279cfe6\","
+                                         "\"TypeName\": \"FlaxEngine.EmptyActor\","
+                                         "\"ParentID\": \"eec6b9644492fbca1a6ab0a7904a557e\","
+                                         "\"Name\": \"Prefab B.Parent\""
+                                         "},"
+                                         "{"
+                                         "\"ID\": \"f701472747356b7c26186db1c4252b53\","
+                                         "\"TypeName\": \"FlaxEngine.EmptyActor\","
+                                         "\"ParentID\": \"eec6b9644492fbca1a6ab0a7904a557e\","
+                                         "\"Name\": \"Prefab B.Child\""
+                                         "}"
+                                         "]");
+        REQUIRE(!prefabBInit);
+
+        // Create Prefab A with nested Prefab B attached to the root
+        AssetReference<Prefab> prefabA = Content::CreateVirtualAsset<Prefab>();
+        REQUIRE(prefabA);
+        Guid::Parse("02524a044184af56b6c664a0f98bd761", id);
+        prefabA->ChangeID(id);
+        auto prefabAInit = prefabA->Init(Prefab::TypeName,
+                                         "["
+                                         "{"
+                                         "\"ID\": \"5aa124754dcd1cdefed80e828831d45b\","
+                                         "\"TypeName\": \"FlaxEngine.EmptyActor\","
+                                         "\"Name\": \"Prefab A.Root\""
+                                         "},"
+                                         "{"
+                                         "\"ID\": \"8e51f1094f430733333f8280e78dfcc3\","
+                                         "\"PrefabID\": \"665bb01c49a3370f14a023b5395de261\","
+                                         "\"PrefabObjectID\": \"eec6b9644492fbca1a6ab0a7904a557e\","
+                                         "\"ParentID\": \"5aa124754dcd1cdefed80e828831d45b\""
+                                         "},"
+                                         "{"
+                                         "\"ID\": \"8e1f2bae4aaedeab8725908ce1aec325\","
+                                         "\"PrefabID\": \"665bb01c49a3370f14a023b5395de261\","
+                                         "\"PrefabObjectID\": \"124540354d2d0a1decbb3ebfc279cfe6\","
+                                         "\"ParentID\": \"8e51f1094f430733333f8280e78dfcc3\""
+                                         "},"
+                                         "{"
+                                         "\"ID\": \"4e4f3a1847cf96fe2e8919848b7eca79\","
+                                         "\"PrefabID\": \"665bb01c49a3370f14a023b5395de261\","
+                                         "\"PrefabObjectID\": \"f701472747356b7c26186db1c4252b53\","
+                                         "\"ParentID\": \"8e51f1094f430733333f8280e78dfcc3\""
+                                         "}"
+                                         "]");
+        REQUIRE(!prefabAInit);
+
+        // Spawn test instances of both prefabs
+        ScriptingObjectReference<Actor> instanceB = PrefabManager::SpawnPrefab(prefabB);
+        ScriptingObjectReference<Actor> instanceA = PrefabManager::SpawnPrefab(prefabA);
+
+        // Verify initial scenario
+        REQUIRE(instanceA);
+        REQUIRE(instanceB);
+        REQUIRE(instanceA->GetName() == TEXT("Prefab A.Root"));
+        REQUIRE(instanceA->GetChildrenCount() == 1);
+        REQUIRE(instanceA->Children[0]->GetName() == TEXT("Prefab B.Root"));
+        REQUIRE(instanceA->Children[0]->GetChildrenCount() == 2);
+        REQUIRE(instanceA->Children[0]->Children[0]->GetName() == TEXT("Prefab B.Parent"));
+        REQUIRE(instanceA->Children[0]->Children[0]->GetChildrenCount() == 0);
+        REQUIRE(instanceA->Children[0]->Children[1]->GetName() == TEXT("Prefab B.Child"));
+        REQUIRE(instanceA->Children[0]->Children[1]->GetChildrenCount() == 0);
+
+        // Modify Prefab B instance to reparent the actor
+        instanceB->FindActor(TEXT("Prefab B.Child"))->SetParent(instanceB->FindActor(TEXT("Prefab B.Parent")));
+
+        // Apply nested prefab changes
+        auto applyResult = PrefabManager::ApplyAll(instanceB);
+        REQUIRE(!applyResult);
+
+        // Verify if instance of Prefab B nested in instance of Prefab A was properly updated
+        REQUIRE(instanceA);
+        REQUIRE(instanceB);
+        REQUIRE(instanceA->GetName() == TEXT("Prefab A.Root"));
+        REQUIRE(instanceA->GetChildrenCount() == 1);
+        REQUIRE(instanceA->Children[0]->GetName() == TEXT("Prefab B.Root"));
+        REQUIRE(instanceA->Children[0]->GetChildrenCount() == 1);
+        REQUIRE(instanceA->Children[0]->Children[0]->GetName() == TEXT("Prefab B.Parent"));
+        REQUIRE(instanceA->Children[0]->Children[0]->GetChildrenCount() == 1);
+        REQUIRE(instanceA->Children[0]->Children[0]->Children[0]->GetName() == TEXT("Prefab B.Child"));
+        REQUIRE(instanceA->Children[0]->Children[0]->Children[0]->GetChildrenCount() == 0);
+
+        // Cleanup
+        instanceA->DeleteObject();
+        instanceB->DeleteObject();
+        Content::DeleteAsset(prefabA);
+        Content::DeleteAsset(prefabB);
+    }
+}