diff --git a/sdk/python/kfp/compiler/compiler.py b/sdk/python/kfp/compiler/compiler.py
index a1b267db278..0a8b2df1509 100644
--- a/sdk/python/kfp/compiler/compiler.py
+++ b/sdk/python/kfp/compiler/compiler.py
@@ -453,7 +453,7 @@ def _group_to_template(self, group, inputs, outputs, dependencies):
 
   def _create_templates(self, pipeline, op_transformers=None, op_to_templates_handler=None):
     """Create all groups and ops templates in the pipeline.
-    
+
     Args:
       pipeline: Pipeline context object to get all the pipeline data from.
       op_transformers: A list of functions that are applied to all ContainerOp instances that are being processed.
@@ -463,6 +463,13 @@ def _create_templates(self, pipeline, op_transformers=None, op_to_templates_hand
     op_to_templates_handler = op_to_templates_handler or (lambda op : [_op_to_template(op)])
     new_root_group = pipeline.groups[0]
 
+    # Call the transformation functions before determining the inputs/outputs, otherwise
+    # the user would not be able to use pipeline parameters in the container definition
+    # (for example as pod labels) - the generated template is invalid.
+    for op in pipeline.ops.values():
+      for transformer in op_transformers or []:
+        transformer(op)
+
     # Generate core data structures to prepare for argo yaml generation
     #   op_groups: op name -> list of ancestor groups including the current op
     #   opsgroups: a dictionary of ospgroup.name -> opsgroup
@@ -486,8 +493,6 @@ def _create_templates(self, pipeline, op_transformers=None, op_to_templates_hand
       templates.append(template)
 
     for op in pipeline.ops.values():
-      for transformer in op_transformers or []:
-        op = transformer(op) or op
       templates.extend(op_to_templates_handler(op))
     return templates
 
diff --git a/sdk/python/tests/compiler/compiler_tests.py b/sdk/python/tests/compiler/compiler_tests.py
index 00e6ec2f667..bf590fd9e61 100644
--- a/sdk/python/tests/compiler/compiler_tests.py
+++ b/sdk/python/tests/compiler/compiler_tests.py
@@ -366,6 +366,10 @@ def test_py_param_substitutions(self):
     """Test pipeline param_substitutions."""
     self._test_py_compile_yaml('param_substitutions')
 
+  def test_py_param_op_transform(self):
+    """Test pipeline param_op_transform."""
+    self._test_py_compile_yaml('param_op_transform')
+
   def test_type_checking_with_consistent_types(self):
     """Test type check pipeline parameters against component metadata."""
     @component
@@ -471,7 +475,7 @@ def op():
     def pipeline():
       task1 = op()
       task2 = op().after(task1)
-    
+
     compiler.Compiler()._compile(pipeline)
 
   def _test_op_to_template_yaml(self, ops, file_base_name):
diff --git a/sdk/python/tests/compiler/testdata/param_op_transform.py b/sdk/python/tests/compiler/testdata/param_op_transform.py
new file mode 100644
index 00000000000..bc7ba5193f0
--- /dev/null
+++ b/sdk/python/tests/compiler/testdata/param_op_transform.py
@@ -0,0 +1,28 @@
+from typing import Callable
+
+import kfp.dsl as dsl
+
+def add_common_labels(param):
+
+    def _add_common_labels(op: dsl.ContainerOp) -> dsl.ContainerOp:
+        return op.add_pod_label('param', param)
+
+    return _add_common_labels
+
+@dsl.pipeline(
+    name="Parameters in Op transformation functions",
+    description="Test that parameters used in Op transformation functions as pod labels "
+                "would be correcly identified and set as arguments in he generated yaml"
+)
+def param_substitutions(param = dsl.PipelineParam(name='param')):
+    dsl.get_pipeline_conf().op_transformers.append(add_common_labels(param))
+
+    op = dsl.ContainerOp(
+        name="cop",
+        image="image",
+    )
+
+
+if __name__ == '__main__':
+    import kfp.compiler as compiler
+    compiler.Compiler().compile(param_substitutions, __file__ + '.yaml')
diff --git a/sdk/python/tests/compiler/testdata/param_op_transform.yaml b/sdk/python/tests/compiler/testdata/param_op_transform.yaml
new file mode 100644
index 00000000000..a9f800c2acd
--- /dev/null
+++ b/sdk/python/tests/compiler/testdata/param_op_transform.yaml
@@ -0,0 +1,40 @@
+apiVersion: argoproj.io/v1alpha1
+kind: Workflow
+metadata:
+  generateName: parameters-in-op-transformation-functions-
+spec:
+  arguments:
+    parameters:
+    - name: param
+  entrypoint: parameters-in-op-transformation-functions
+  serviceAccountName: pipeline-runner
+  templates:
+  - container:
+      image: image
+    inputs:
+      parameters:
+      - name: param
+    metadata:
+      labels:
+        param: '{{inputs.parameters.param}}'
+    name: cop
+    outputs:
+      artifacts:
+      - name: mlpipeline-ui-metadata
+        optional: true
+        path: /mlpipeline-ui-metadata.json
+      - name: mlpipeline-metrics
+        optional: true
+        path: /mlpipeline-metrics.json
+  - dag:
+      tasks:
+      - arguments:
+          parameters:
+          - name: param
+            value: '{{inputs.parameters.param}}'
+        name: cop
+        template: cop
+    inputs:
+      parameters:
+      - name: param
+    name: parameters-in-op-transformation-functions