diff --git a/changelogs/fragments/239-launch_template-source-version.yml b/changelogs/fragments/239-launch_template-source-version.yml
new file mode 100644
index 00000000000..3a7e291eddd
--- /dev/null
+++ b/changelogs/fragments/239-launch_template-source-version.yml
@@ -0,0 +1,2 @@
+minor_changes:
+- ec2_launch_template - Adds support for specifying the ``source_version`` upon which template updates are based (https://github.com/ansible-collections/community.aws/pull/239).
diff --git a/plugins/modules/ec2_launch_template.py b/plugins/modules/ec2_launch_template.py
index 4f2d05e1630..9e7bcd7cda2 100644
--- a/plugins/modules/ec2_launch_template.py
+++ b/plugins/modules/ec2_launch_template.py
@@ -313,6 +313,14 @@
       For any VPC other than Default, you must use I(security_group_ids).
     type: list
     elements: str
+  source_version:
+    description: >
+      The version number of the launch template version on which to base the new version.
+      The new version inherits the same launch parameters as the source version, except for parameters that you explicity specify.
+      Snapshots applied to the block device mapping are ignored when creating a new version unless they are explicitly included.
+    type: str
+    default: latest
+    version_added: 4.1.0
   tags:
     type: dict
     description:
@@ -569,12 +577,38 @@ def create_or_update(module, template_options):
             out['changed'] = False
             return out
         try:
-            resp = ec2.create_launch_template_version(
-                LaunchTemplateId=template['LaunchTemplateId'],
-                LaunchTemplateData=lt_data,
-                ClientToken=uuid4().hex,
-                aws_retry=True,
-            )
+            if module.params.get('source_version') in (None, ''):
+                resp = ec2.create_launch_template_version(
+                    LaunchTemplateId=template['LaunchTemplateId'],
+                    LaunchTemplateData=lt_data,
+                    ClientToken=uuid4().hex,
+                    aws_retry=True,
+                )
+            elif module.params.get('source_version') == 'latest':
+                resp = ec2.create_launch_template_version(
+                    LaunchTemplateId=template['LaunchTemplateId'],
+                    LaunchTemplateData=lt_data,
+                    ClientToken=uuid4().hex,
+                    SourceVersion=str(most_recent['VersionNumber']),
+                    aws_retry=True,
+                )
+            else:
+                try:
+                    int(module.params.get('source_version'))
+                except ValueError:
+                    module.fail_json(msg='source_version param was not a valid integer, got "{0}"'.format(module.params.get('source_version')))
+                # get source template version
+                source_version = next((v for v in template_versions if v['VersionNumber'] == int(module.params.get('source_version'))), None)
+                if source_version is None:
+                    module.fail_json(msg='source_version does not exist, got "{0}"'.format(module.params.get('source_version')))
+                resp = ec2.create_launch_template_version(
+                    LaunchTemplateId=template['LaunchTemplateId'],
+                    LaunchTemplateData=lt_data,
+                    ClientToken=uuid4().hex,
+                    SourceVersion=str(source_version['VersionNumber']),
+                    aws_retry=True,
+                )
+
             if module.params.get('default_version') in (None, ''):
                 # no need to do anything, leave the existing version as default
                 pass
@@ -748,6 +782,7 @@ def main():
         template_name=dict(aliases=['name']),
         template_id=dict(aliases=['id']),
         default_version=dict(default='latest'),
+        source_version=dict(default='latest')
     )
 
     arg_spec.update(template_options)
diff --git a/tests/integration/targets/ec2_launch_template/tasks/versions.yml b/tests/integration/targets/ec2_launch_template/tasks/versions.yml
index b2e94c5c3c5..e666b64e4b2 100644
--- a/tests/integration/targets/ec2_launch_template/tasks/versions.yml
+++ b/tests/integration/targets/ec2_launch_template/tasks/versions.yml
@@ -51,6 +51,24 @@
         - lt.default_version == 3
         - lt.latest_version == 3
 
+  - name: create new template version based on an old version
+    ec2_launch_template:
+      name: "{{ resource_prefix }}-simple"
+      cpu_options:
+          core_count: 1
+          threads_per_core: 1
+      source_version: 1
+    register: lt
+
+  - name: instance with cpu_options created with the right options
+    assert:
+      that:
+        - lt is success
+        - lt is changed
+        - lt.default_version == 4
+        - lt.latest_version == 4
+        - lt.latest_template.launch_template_data.instance_type == "c4.large"
+
   always:
   - name: delete the template
     ec2_launch_template: