diff --git a/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.test.ts b/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.test.ts
index a01f922f72..fbe5e7e890 100644
--- a/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.test.ts
+++ b/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.test.ts
@@ -175,12 +175,6 @@ describe('UmbLocalizeController', () => {
 			expect((controller.term as any)('logout', 'Hello', 'World')).to.equal('Log out');
 		});
 
-		it('should encode HTML entities', () => {
-			expect(controller.term('withInlineToken', 'Hello', '<script>alert("XSS")</script>'), 'XSS detected').to.equal(
-				'Hello &lt;script&gt;alert(&#34;XSS&#34;)&lt;/script&gt;',
-			);
-		});
-
 		it('only reacts to changes of its own localization-keys', async () => {
 			const element: UmbLocalizationRenderCountElement = await fixture(
 				html`<umb-localization-render-count></umb-localization-render-count>`,
diff --git a/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.ts b/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.ts
index cb9e3927a5..c85be3797e 100644
--- a/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.ts
+++ b/src/Umbraco.Web.UI.Client/src/libs/localization-api/localization.controller.ts
@@ -20,7 +20,6 @@ import type {
 import { umbLocalizationManager } from './localization.manager.js';
 import type { LitElement } from '@umbraco-cms/backoffice/external/lit';
 import type { UmbController, UmbControllerHost } from '@umbraco-cms/backoffice/controller-api';
-import { escapeHTML } from '@umbraco-cms/backoffice/utils';
 
 const LocalizationControllerAlias = Symbol();
 /**
@@ -137,20 +136,16 @@ export class UmbLocalizationController<LocalizationSetType extends UmbLocalizati
 			return String(key);
 		}
 
-		// As translated texts can contain HTML, we will need to render with unsafeHTML.
-		// But arguments can come from user input, so they should be escaped.
-		const sanitizedArgs = args.map((a) => escapeHTML(a));
-
 		if (typeof term === 'function') {
-			return term(...sanitizedArgs) as string;
+			return term(...args) as string;
 		}
 
 		if (typeof term === 'string') {
-			if (sanitizedArgs.length) {
+			if (args.length) {
 				// Replace placeholders of format "%index%" and "{index}" with provided values
 				term = term.replace(/(%(\d+)%|\{(\d+)\})/g, (match, _p1, p2, p3): string => {
 					const index = p2 || p3;
-					return typeof sanitizedArgs[index] !== 'undefined' ? String(sanitizedArgs[index]) : match;
+					return typeof args[index] !== 'undefined' ? String(args[index]) : match;
 				});
 			}
 		}
diff --git a/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.test.ts b/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.test.ts
index ae69b81fd1..66f5487a1d 100644
--- a/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.test.ts
+++ b/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.test.ts
@@ -95,6 +95,14 @@ describe('umb-localize', () => {
 			expect(element.shadowRoot?.innerHTML).to.contain('Hello World');
 		});
 
+		it('should localize a key with multiple arguments as encoded HTML', async () => {
+			element.key = 'general_moreThanOneArgument';
+			element.args = ['<strong>Hello</strong>', '<em>World</em>'];
+			await elementUpdated(element);
+
+			expect(element.shadowRoot?.innerHTML).to.contain('&lt;strong&gt;Hello&lt;/strong&gt; &lt;em&gt;World&lt;/em&gt;');
+		});
+
 		it('should localize a key with args as an attribute', async () => {
 			element.key = 'general_moreThanOneArgument';
 			element.setAttribute('args', '["Hello","World"]');
diff --git a/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.ts b/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.ts
index 945209f072..11aa824808 100644
--- a/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.ts
+++ b/src/Umbraco.Web.UI.Client/src/packages/core/localization/localize.element.ts
@@ -1,4 +1,5 @@
 import { css, customElement, html, property, state, unsafeHTML } from '@umbraco-cms/backoffice/external/lit';
+import { escapeHTML } from '@umbraco-cms/backoffice/utils';
 import { UmbLitElement } from '@umbraco-cms/backoffice/lit-element';
 
 /**
@@ -34,7 +35,11 @@ export class UmbLocalizeElement extends UmbLitElement {
 
 	@state()
 	protected get text(): string {
-		const localizedValue = this.localize.term(this.key, ...(this.args ?? []));
+		// As translated texts can contain HTML, we will need to render with unsafeHTML.
+		// But arguments can come from user input, so they should be escaped.
+		const escapedArgs = (this.args ?? []).map((a) => escapeHTML(a));
+
+		const localizedValue = this.localize.term(this.key, ...escapedArgs);
 
 		// If the value is the same as the key, it means the key was not found.
 		if (localizedValue === this.key) {
@@ -44,12 +49,13 @@ export class UmbLocalizeElement extends UmbLitElement {
 
 		(this.getHostElement() as HTMLElement).removeAttribute('data-localize-missing');
 
-		return localizedValue;
+		return localizedValue.trim();
 	}
 
 	override render() {
-		return this.text.trim()
-			? html`${unsafeHTML(this.text)}`
+		const text = this.text;
+		return text
+			? unsafeHTML(text)
 			: this.debug
 				? html`<span style="color:red">${this.key}</span>`
 				: html`<slot></slot>`;
diff --git a/src/Umbraco.Web.UI.Client/src/packages/core/utils/sanitize/escape-html.function.ts b/src/Umbraco.Web.UI.Client/src/packages/core/utils/sanitize/escape-html.function.ts
index ee84b1ee86..e183b0dac2 100644
--- a/src/Umbraco.Web.UI.Client/src/packages/core/utils/sanitize/escape-html.function.ts
+++ b/src/Umbraco.Web.UI.Client/src/packages/core/utils/sanitize/escape-html.function.ts
@@ -4,7 +4,7 @@ const NON_ALPHANUMERIC_REGEXP = /([^#-~| |!])/g;
 
 /**
  * Escapes HTML entities in a string.
- * @example escapeHTML('<script>alert("XSS")</script>'), // "&lt;script&gt;alert(&quot;XSS&quot;)&lt;/script&gt;"
+ * @example escapeHTML('<script>alert("XSS")</script>'), // "&lt;script&gt;alert(&#34;XSS&#34;)&lt;/script&gt;"
  * @param html The HTML string to escape.
  * @returns The sanitized HTML string.
  */