diff --git a/pkg/collector/python/init_windows.go b/pkg/collector/python/init_windows.go
index 04d18175df1f7..3de1ba7a459b0 100644
--- a/pkg/collector/python/init_windows.go
+++ b/pkg/collector/python/init_windows.go
@@ -9,8 +9,10 @@ package python
 
 import (
 	"os"
+	"path/filepath"
 
 	pkgconfigsetup "github.com/DataDog/datadog-agent/pkg/config/setup"
+	"github.com/DataDog/datadog-agent/pkg/util/winutil"
 )
 
 // Any platform-specific initialization belongs here.
@@ -21,5 +23,41 @@ func initializePlatform() error {
 		os.Unsetenv("PYTHONPATH")
 	}
 
+	// only use cache file when not admin
+	admin, _ := winutil.IsUserAnAdmin()
+	if !admin {
+		err := enableSeparatePythonCacheDir()
+		if err != nil {
+			return err
+		}
+	}
+
 	return nil
 }
+
+// enableSeparatePythonCacheDir configures Python to use a separate directory for its pycache.
+//
+// Creates a python-cache subdir in the configuration directory and configures Python to use it via the PYTHONPYCACHEPREFIX env var.
+//
+// https://docs.python.org/3/using/cmdline.html#envvar-PYTHONPYCACHEPREFIX
+func enableSeparatePythonCacheDir() error {
+	pd, err := winutil.GetProgramDataDir()
+	if err != nil {
+		return err
+	}
+	pycache := filepath.Join(pd, "python-cache")
+
+	// check if path exists and create directory if it doesn't
+	if _, err := os.Stat(pycache); os.IsNotExist(err) {
+		if err := os.MkdirAll(pycache, 0755); err != nil {
+			return err
+		}
+	} else if err != nil {
+		return err
+	}
+
+	os.Setenv("PYTHONPYCACHEPREFIX", pycache)
+
+	return nil
+
+}
diff --git a/releasenotes/notes/update-embedded-permissions-a8e169f1c079cd41.yaml b/releasenotes/notes/update-embedded-permissions-a8e169f1c079cd41.yaml
new file mode 100644
index 0000000000000..8b9cafd486a16
--- /dev/null
+++ b/releasenotes/notes/update-embedded-permissions-a8e169f1c079cd41.yaml
@@ -0,0 +1,11 @@
+# Each section from every release note are combined when the
+# CHANGELOG.rst is rendered. So the text needs to be worded so that
+# it does not depend on any information only available in another
+# section. This may mean repeating some details, but each section
+# must be readable independently of the other.
+#
+# Each section note must be formatted as reStructuredText.
+---
+security:
+  - |
+    Move the embedded Python cache out of the installation directory on Windows.
diff --git a/test/new-e2e/tests/windows/install-test/installtester.go b/test/new-e2e/tests/windows/install-test/installtester.go
index e0fbee6886600..f0c86fdf8c9d1 100644
--- a/test/new-e2e/tests/windows/install-test/installtester.go
+++ b/test/new-e2e/tests/windows/install-test/installtester.go
@@ -536,31 +536,6 @@ func (t *Tester) testInstalledFilePermissions(tt *testing.T, ddAgentUserIdentity
 		})
 	}
 
-	// expect to have standard inherited permissions, plus an explciit ACE for ddagentuser
-	embeddedPaths := []string{
-		filepath.Join(t.expectedInstallPath, "embedded3"),
-	}
-	if t.ExpectPython2Installed() {
-		embeddedPaths = append(embeddedPaths,
-			filepath.Join(t.expectedInstallPath, "embedded2"),
-		)
-	}
-	agentUserFullAccessDirRule := windows.NewExplicitAccessRuleWithFlags(
-		ddAgentUserIdentity,
-		windows.FileFullControl,
-		windows.AccessControlTypeAllow,
-		windows.InheritanceFlagsContainer|windows.InheritanceFlagsObject,
-		windows.PropagationFlagsNone,
-	)
-	for _, path := range embeddedPaths {
-		out, err := windows.GetSecurityInfoForPath(t.host, path)
-		require.NoError(tt, err)
-		if !windows.IsIdentityLocalSystem(ddAgentUserIdentity) {
-			windows.AssertContainsEqualable(tt, out.Access, agentUserFullAccessDirRule, "%s should have full access rule for %s", path, ddAgentUserIdentity)
-		}
-		assert.False(tt, out.AreAccessRulesProtected, "%s should inherit access rules", path)
-	}
-
 	// ensure the agent user does not have an ACE on the install dir
 	out, err := windows.GetSecurityInfoForPath(t.host, t.expectedInstallPath)
 	require.NoError(tt, err)
diff --git a/tools/windows/DatadogAgentInstaller/CustomActions/ConfigureUserCustomActions.cs b/tools/windows/DatadogAgentInstaller/CustomActions/ConfigureUserCustomActions.cs
index 1447f8a080fd0..817f118b0c797 100644
--- a/tools/windows/DatadogAgentInstaller/CustomActions/ConfigureUserCustomActions.cs
+++ b/tools/windows/DatadogAgentInstaller/CustomActions/ConfigureUserCustomActions.cs
@@ -586,9 +586,6 @@ private List<string> PathsWithAgentAccess()
                 // agent needs to be able to write to run/
                 // agent needs to be able to create auth_token
                 _session.Property("APPLICATIONDATADIRECTORY"),
-                // allow agent to write __pycache__
-                Path.Combine(_session.Property("PROJECTLOCATION"), "embedded2"),
-                Path.Combine(_session.Property("PROJECTLOCATION"), "embedded3"),
             };
         }