diff --git a/Packages.props b/Packages.props
index 2036741f..85b958c9 100644
--- a/Packages.props
+++ b/Packages.props
@@ -23,7 +23,7 @@
 		<PackageReference Update="Microsoft.Data.SqlClient.AlwaysEncrypted.AzureKeyVaultProvider" Version="1.1.1" />
 		<PackageReference Update="Microsoft.SqlServer.Management.SmoMetadataProvider" Version="170.12.0" />
 		<PackageReference Update="Microsoft.SqlServer.DacFx" Version="162.0.34-preview" />
-		<PackageReference Update="Microsoft.SqlServer.DacFx.Projects" Version="162.1.20-alpha" />
+		<PackageReference Update="Microsoft.SqlServer.DacFx.Projects" Version="162.1.37-alpha" />
 		<PackageReference Update="Microsoft.Azure.Kusto.Data" Version="9.0.4" />
 		<PackageReference Update="Microsoft.Azure.Kusto.Language" Version="9.0.4" />
 		<PackageReference Update="Microsoft.SqlServer.Assessment" Version="[1.1.17]" />
diff --git a/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.20-alpha.nupkg b/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.20-alpha.nupkg
deleted file mode 100644
index 7fb4eb03..00000000
Binary files a/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.20-alpha.nupkg and /dev/null differ
diff --git a/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.37-alpha.nupkg b/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.37-alpha.nupkg
new file mode 100644
index 00000000..31b87483
Binary files /dev/null and b/bin/nuget/Microsoft.SqlServer.DacFx.Projects.162.1.37-alpha.nupkg differ
diff --git a/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/Contracts/DatabaseReferences/AddSystemDatabaseReference.cs b/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/Contracts/DatabaseReferences/AddSystemDatabaseReference.cs
index 2beb7ae8..eaa34d84 100644
--- a/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/Contracts/DatabaseReferences/AddSystemDatabaseReference.cs
+++ b/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/Contracts/DatabaseReferences/AddSystemDatabaseReference.cs
@@ -18,6 +18,11 @@ namespace Microsoft.SqlTools.ServiceLayer.SqlProjects.Contracts
         /// Type of system database
         /// </summary>
         public SystemDatabase SystemDatabase { get; set; }
+
+        /// <summary>
+        /// Type of reference - ArtifactReference or PackageReference
+        /// </summary>
+        public ReferenceType ReferenceType { get; set; }
     }
 
     /// <summary>
diff --git a/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/SqlProjectsService.cs b/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/SqlProjectsService.cs
index 64a26aaf..de85ca33 100644
--- a/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/SqlProjectsService.cs
+++ b/src/Microsoft.SqlTools.ServiceLayer/SqlProjects/SqlProjectsService.cs
@@ -385,7 +385,8 @@ namespace Microsoft.SqlTools.ServiceLayer.SqlProjects
                 new SystemDatabaseReference(
                     requestParams.SystemDatabase,
                     requestParams.SuppressMissingDependencies,
-                    requestParams.DatabaseLiteral)),
+                    requestParams.DatabaseLiteral,
+                    requestParams.ReferenceType)),
                 requestContext);
         }
 
diff --git a/test/Microsoft.SqlTools.ServiceLayer.IntegrationTests/SqlProjects/SqlProjectsServiceTests.cs b/test/Microsoft.SqlTools.ServiceLayer.IntegrationTests/SqlProjects/SqlProjectsServiceTests.cs
index 49f25868..6d659c5b 100644
--- a/test/Microsoft.SqlTools.ServiceLayer.IntegrationTests/SqlProjects/SqlProjectsServiceTests.cs
+++ b/test/Microsoft.SqlTools.ServiceLayer.IntegrationTests/SqlProjects/SqlProjectsServiceTests.cs
@@ -527,21 +527,40 @@ namespace Microsoft.SqlTools.ServiceLayer.IntegrationTests.SqlProjects
         {
             var (service, projectUri, _, _) = await SetUpDatabaseReferenceTest();
 
+            // Artifact reference
             MockRequest<ResultStatus> requestMock = new();
             await service.HandleAddSystemDatabaseReferenceRequest(new AddSystemDatabaseReferenceParams()
             {
                 ProjectUri = projectUri,
                 SystemDatabase = SystemDatabase.MSDB,
                 DatabaseLiteral = "EmEssDeeBee",
-                SuppressMissingDependencies = false
+                SuppressMissingDependencies = false,
+                ReferenceType = ReferenceType.ArtifactReference
             }, requestMock.Object);
 
             requestMock.AssertSuccess(nameof(service.HandleAddSystemDatabaseReferenceRequest));
-            Assert.AreEqual(1, service.Projects[projectUri].DatabaseReferences.Count, "Database references after adding system db reference");
-            SystemDatabaseReference systemDbRef = (SystemDatabaseReference)service.Projects[projectUri].DatabaseReferences.Get(SystemDatabase.MSDB.ToString());
-            Assert.AreEqual(SystemDatabase.MSDB, systemDbRef.SystemDb, "Referenced system DB");
-            Assert.AreEqual("EmEssDeeBee", systemDbRef.DatabaseVariableLiteralName);
-            Assert.IsFalse(systemDbRef.SuppressMissingDependencies, nameof(systemDbRef.SuppressMissingDependencies));
+            Assert.AreEqual(1, service.Projects[projectUri].DatabaseReferences.Count, "Database references after adding system db reference to msdb");
+            SystemDatabaseReference msdbRef = (SystemDatabaseReference)service.Projects[projectUri].DatabaseReferences.Get(SystemDatabase.MSDB.ToString());
+            Assert.AreEqual(SystemDatabase.MSDB, msdbRef.SystemDb, "Referenced system DB");
+            Assert.AreEqual("EmEssDeeBee", msdbRef.DatabaseVariableLiteralName);
+            Assert.IsFalse(msdbRef.SuppressMissingDependencies, nameof(msdbRef.SuppressMissingDependencies));
+            Assert.AreEqual(ReferenceType.ArtifactReference, msdbRef.ReferenceType);
+
+            // Package reference
+            await service.HandleAddSystemDatabaseReferenceRequest(new AddSystemDatabaseReferenceParams()
+            {
+                ProjectUri = projectUri,
+                SystemDatabase = SystemDatabase.Master,
+                SuppressMissingDependencies = false,
+                ReferenceType = ReferenceType.PackageReference
+            }, requestMock.Object);
+
+            requestMock.AssertSuccess(nameof(service.HandleAddSystemDatabaseReferenceRequest));
+            Assert.AreEqual(2, service.Projects[projectUri].DatabaseReferences.Count, "Database references after adding system db reference to master");
+            SystemDatabaseReference masterRef = (SystemDatabaseReference)service.Projects[projectUri].DatabaseReferences.Get(SystemDatabase.Master.ToString());
+            Assert.AreEqual(SystemDatabase.Master, masterRef.SystemDb, "Referenced system DB");
+            Assert.IsFalse(masterRef.SuppressMissingDependencies, nameof(masterRef.SuppressMissingDependencies));
+            Assert.AreEqual(ReferenceType.PackageReference, masterRef.ReferenceType);
         }
 
         [Test]