diff --git a/CHANGELOG.md b/CHANGELOG.md
index ea462b86..f8f5a045 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -1,3 +1,9 @@
+## 2.8.1 (June 14, 2024)
+
+BUG FIXES:
+
+* resource/xray_\*\_policy: Fix incorrect error handling when deleting a policy that is still attached to a watch. This leads to the resource being deleted even though the policy can't be deleted. PR: [#205](https://github.com/jfrog/terraform-provider-xray/pull/205)
+
 ## 2.8.0 (May 30, 2024)
 
 IMPROVEMENTS:
diff --git a/pkg/xray/resource/policies.go b/pkg/xray/resource/policies.go
index a3e55d04..c8dedcb8 100644
--- a/pkg/xray/resource/policies.go
+++ b/pkg/xray/resource/policies.go
@@ -284,6 +284,10 @@ type Policy struct {
 	Modified    string        `json:"modified,omitempty"` // Omitempty is used because the field is computed
 }
 
+type PolicyError struct {
+	Error string `json:"error"`
+}
+
 func unpackPolicy(d *schema.ResourceData) (*Policy, error) {
 	policy := new(Policy)
 
@@ -754,12 +758,16 @@ func resourceXrayPolicyCreate(ctx context.Context, d *schema.ResourceData, m int
 		return diag.FromErr(err)
 	}
 
-	resp, err := req.SetBody(policy).Post("xray/api/v2/policies")
+	var policyError PolicyError
+	resp, err := req.
+		SetBody(policy).
+		SetError(&policyError).
+		Post("xray/api/v2/policies")
 	if err != nil {
 		return diag.FromErr(err)
 	}
 	if resp.IsError() {
-		return diag.Errorf("%s", resp.String())
+		return diag.Errorf("%s", policyError.Error)
 	}
 
 	d.SetId(policy.Name)
@@ -775,9 +783,11 @@ func resourceXrayPolicyRead(ctx context.Context, d *schema.ResourceData, m inter
 		return diag.FromErr(err)
 	}
 
+	var policyError PolicyError
 	resp, err := req.
 		SetResult(&policy).
 		SetPathParam("name", d.Id()).
+		SetError(&policyError).
 		Get("xray/api/v2/policies/{name}")
 	if err != nil {
 		return diag.FromErr(err)
@@ -787,7 +797,7 @@ func resourceXrayPolicyRead(ctx context.Context, d *schema.ResourceData, m inter
 		return diag.Errorf("policy (%s) not found, removing from state", d.Id())
 	}
 	if resp.IsError() {
-		return diag.Errorf("%s", resp.String())
+		return diag.Errorf("%s", policyError.Error)
 	}
 
 	return packPolicy(policy, d)
@@ -804,17 +814,19 @@ func resourceXrayPolicyUpdate(ctx context.Context, d *schema.ResourceData, m int
 		return diag.FromErr(err)
 	}
 
+	var policyError PolicyError
 	resp, err := req.
 		SetBody(policy).
 		SetPathParams(map[string]string{
 			"name": d.Id(),
 		}).
+		SetError(&policyError).
 		Put("xray/api/v2/policies/{name}")
 	if err != nil {
 		return diag.FromErr(err)
 	}
 	if resp.IsError() {
-		return diag.Errorf("%s", resp.String())
+		return diag.Errorf("%s", policyError.Error)
 	}
 
 	d.SetId(policy.Name)
@@ -832,20 +844,18 @@ func resourceXrayPolicyDelete(ctx context.Context, d *schema.ResourceData, m int
 		return diag.FromErr(err)
 	}
 
-	// Warning or errors can be collected in a slice type
+	var policyError PolicyError
 	resp, err := req.
 		SetPathParams(map[string]string{
 			"name": d.Id(),
 		}).
+		SetError(&policyError).
 		Delete("xray/api/v2/policies/{name}")
 	if err != nil {
 		return diag.FromErr(err)
 	}
-	if resp.StatusCode() == http.StatusInternalServerError {
-		d.SetId("")
-	}
 	if resp.IsError() {
-		return diag.Errorf("%s", resp.String())
+		return diag.Errorf("%s", policyError.Error)
 	}
 
 	d.SetId("")
diff --git a/pkg/xray/resource/resource_xray_security_policy_test.go b/pkg/xray/resource/resource_xray_security_policy_test.go
index fe846d82..1d28534c 100644
--- a/pkg/xray/resource/resource_xray_security_policy_test.go
+++ b/pkg/xray/resource/resource_xray_security_policy_test.go
@@ -1169,7 +1169,7 @@ const securityPolicyMinSeverity = `resource "xray_security_policy" "{{ .resource
 		name = "{{ .rule_name }}"
 		priority = 1
 		criteria {
-            min_severity = "{{ .min_severity }}"
+			min_severity = "{{ .min_severity }}"
 		}
 		actions {
 			block_release_bundle_distribution = {{ .block_release_bundle_distribution }}
@@ -1194,7 +1194,7 @@ const securityPolicyExposures = `resource "xray_security_policy" "{{ .resource_n
 		name = "{{ .rule_name }}"
 		priority = 1
 		criteria {
-            exposures {
+			exposures {
 				min_severity 	= "{{ .exposures_min_severity }}"
 				secrets 		= {{ .exposures_secrets }}
 				applications 	= {{ .exposures_applications }}
@@ -1225,7 +1225,7 @@ const securityPolicyFixVersionDep = `resource "xray_security_policy" "{{ .resour
 		name = "{{ .rule_name }}"
 		priority = 1
 		criteria {
-            min_severity		  = "{{ .min_severity }}"
+			min_severity		  = "{{ .min_severity }}"
 			fix_version_dependant = {{ .fix_version_dependant }}
 		}
 		actions {