diff --git a/packages/rocketchat-api/server/v1/users.js b/packages/rocketchat-api/server/v1/users.js
index 2d8e9b9003a..bb65480c984 100644
--- a/packages/rocketchat-api/server/v1/users.js
+++ b/packages/rocketchat-api/server/v1/users.js
@@ -348,7 +348,7 @@ RocketChat.API.v1.addRoute('users.setPreferences', { authRequired: true }, {
 				sidebarSortby: Match.Optional(String),
 				sidebarViewMode: Match.Optional(String),
 				sidebarHideAvatar: Match.Optional(Boolean),
-				mergeChannels: Match.Optional(Boolean),
+				groupByType: Match.Optional(Boolean),
 				muteFocusedConversations: Match.Optional(Boolean)
 			})
 		});
diff --git a/packages/rocketchat-i18n/i18n/en.i18n.json b/packages/rocketchat-i18n/i18n/en.i18n.json
index 4c04064432c..1ec26f7da23 100644
--- a/packages/rocketchat-i18n/i18n/en.i18n.json
+++ b/packages/rocketchat-i18n/i18n/en.i18n.json
@@ -2189,6 +2189,7 @@
   "UI_Click_Direct_Message_Description": "Skip opening profile tab, instead go straight to conversation",
   "UI_DisplayRoles": "Display Roles",
   "UI_Merge_Channels_Groups": "Merge Private Groups with Channels",
+  "UI_Group_Channels_By_Type": "Group channels by type",
   "UI_Unread_Counter_Style": "Unread Counter Style",
   "UI_Use_Name_Avatar": "Use Full Name Initials to Generate Default Avatar",
   "UI_Use_Real_Name": "Use Real Name",
diff --git a/packages/rocketchat-lib/lib/roomTypes/conversation.js b/packages/rocketchat-lib/lib/roomTypes/conversation.js
index 6f7caa07bdc..9a0f9eb51d8 100644
--- a/packages/rocketchat-lib/lib/roomTypes/conversation.js
+++ b/packages/rocketchat-lib/lib/roomTypes/conversation.js
@@ -11,6 +11,7 @@ export class ConversationRoomType extends RoomTypeConfig {
 
 	condition() {
 		const user = Meteor.user();
-		return RocketChat.getUserPreference(user, 'mergeChannels');
+		// returns true only if groupByType is not set
+		return !RocketChat.getUserPreference(user, 'groupByType');
 	}
 }
diff --git a/packages/rocketchat-lib/lib/roomTypes/direct.js b/packages/rocketchat-lib/lib/roomTypes/direct.js
index 5ea839f7d1e..0e32b7587d2 100644
--- a/packages/rocketchat-lib/lib/roomTypes/direct.js
+++ b/packages/rocketchat-lib/lib/roomTypes/direct.js
@@ -62,8 +62,8 @@ export class DirectMessageRoomType extends RoomTypeConfig {
 
 	condition() {
 		const user = Meteor.user();
-		const mergeChannels = RocketChat.getUserPreference(user, 'mergeChannels');
-		return !mergeChannels && RocketChat.authz.hasAtLeastOnePermission(['view-d-room', 'view-joined-room']);
+		const groupByType = RocketChat.getUserPreference(user, 'groupByType');
+		return groupByType && RocketChat.authz.hasAtLeastOnePermission(['view-d-room', 'view-joined-room']);
 	}
 
 	getUserStatus(roomId) {
diff --git a/packages/rocketchat-lib/lib/roomTypes/private.js b/packages/rocketchat-lib/lib/roomTypes/private.js
index 50504941fb7..fd95a7cec73 100644
--- a/packages/rocketchat-lib/lib/roomTypes/private.js
+++ b/packages/rocketchat-lib/lib/roomTypes/private.js
@@ -44,8 +44,8 @@ export class PrivateRoomType extends RoomTypeConfig {
 
 	condition() {
 		const user = Meteor.user();
-		const mergeChannels = RocketChat.getUserPreference(user, 'mergeChannels');
-		return !mergeChannels && RocketChat.authz.hasAllPermission('view-p-room');
+		const groupByType = RocketChat.getUserPreference(user, 'groupByType');
+		return groupByType && RocketChat.authz.hasAllPermission('view-p-room');
 	}
 
 	isGroupChat() {
diff --git a/packages/rocketchat-lib/lib/roomTypes/public.js b/packages/rocketchat-lib/lib/roomTypes/public.js
index 12c2af62960..ced1a930b8a 100644
--- a/packages/rocketchat-lib/lib/roomTypes/public.js
+++ b/packages/rocketchat-lib/lib/roomTypes/public.js
@@ -43,8 +43,8 @@ export class PublicRoomType extends RoomTypeConfig {
 	condition() {
 		const user = Meteor.user();
 		// const roomsListExhibitionMode = RocketChat.getUserPreference(user, 'roomsListExhibitionMode');
-		const mergeChannels = RocketChat.getUserPreference(user, 'mergeChannels');
-		return !mergeChannels && (RocketChat.authz.hasAtLeastOnePermission(['view-c-room', 'view-joined-room']) || RocketChat.settings.get('Accounts_AllowAnonymousRead') === true);
+		const groupByType = RocketChat.getUserPreference(user, 'groupByType');
+		return groupByType && (RocketChat.authz.hasAtLeastOnePermission(['view-c-room', 'view-joined-room']) || RocketChat.settings.get('Accounts_AllowAnonymousRead') === true);
 	}
 
 	showJoinLink(roomId) {
diff --git a/packages/rocketchat-lib/server/startup/settings.js b/packages/rocketchat-lib/server/startup/settings.js
index 7bc15e5b674..2ad5cc06fc1 100644
--- a/packages/rocketchat-lib/server/startup/settings.js
+++ b/packages/rocketchat-lib/server/startup/settings.js
@@ -1625,9 +1625,9 @@ RocketChat.settings.addGroup('Layout', function() {
 			type: 'boolean',
 			'public': true
 		});
-		this.add('UI_Merge_Channels_Groups', true, {
+		this.add('UI_Group_Channels_By_Type', true, {
 			type: 'boolean',
-			'public': true
+			'public': false
 		});
 		this.add('UI_Use_Name_Avatar', false, {
 			type: 'boolean',
diff --git a/packages/rocketchat-ui-account/client/accountPreferences.html b/packages/rocketchat-ui-account/client/accountPreferences.html
index 8ec4479fda1..232f358b728 100644
--- a/packages/rocketchat-ui-account/client/accountPreferences.html
+++ b/packages/rocketchat-ui-account/client/accountPreferences.html
@@ -193,26 +193,6 @@
 									<label><input type="radio" name="hideAvatars" value="false" checked="{{checked 'hideAvatars' false}}"/> {{_ "False"}}</label>
 								</div>
 							</div>
-							<!-- <div class="input-line double-col">
-								<label for="roomsListExhibitionMode">{{_ "Sidebar_list_mode"}}</label>
-								<div>
-									<select class="input-monitor rc-input__element" name="roomsListExhibitionMode" id="roomsListExhibitionMode">
-										<option value="unread" selected="{{selected 'roomsListExhibitionMode' 'unread'}}">{{_ "Unread_Rooms_Mode"}}</option>
-										<option value="activity" selected="{{selected 'roomsListExhibitionMode' 'activity'}}">{{_ "Sort_by_activity"}}</option>
-										<option value="category" selected="{{selected 'roomsListExhibitionMode' 'category'}}">{{_ "Split_by_categories"}}</option>
-									</select>
-								</div>
-							</div> -->
-							<!-- {{# with disabled=showMergedChannels}}
-							<div class="input-line double-col" id="mergeChannels" {{disabled}}>
-								<label>{{_ "UI_Merge_Channels_Groups"}}</label>
-								<div>
-									<label><input type="radio" name="mergeChannels" value="1" checked="{{checked 'mergeChannels' true 'default'}}" {{disabled}}/> {{_ "True"}}</label>
-									<label><input type="radio" name="mergeChannels" value="0" checked="{{checked 'mergeChannels' false 'default'}}" {{disabled}}/> {{_ "False"}}</label>
-									<label><input type="radio" name="mergeChannels" value="-1" checked="{{checked 'mergeChannels' 'default' 'default'}}" {{disabled}}/> {{_ "Default"}}</label>
-								</div>
-							</div>
-							{{/with}} -->
 							<div class="input-line double-col" id="messageViewMode">
 								<label>{{_ "View_mode"}}</label>
 								<div>
diff --git a/packages/rocketchat-ui-sidenav/client/sideNav.js b/packages/rocketchat-ui-sidenav/client/sideNav.js
index fb5ba7d0c72..ce9956e0734 100644
--- a/packages/rocketchat-ui-sidenav/client/sideNav.js
+++ b/packages/rocketchat-ui-sidenav/client/sideNav.js
@@ -76,16 +76,16 @@ Template.sideNav.onRendered(function() {
 });
 
 Template.sideNav.onCreated(function() {
-	this.mergedChannels = new ReactiveVar(false);
+	this.groupedByType = new ReactiveVar(false);
 
 	this.autorun(() => {
 		const user = RocketChat.models.Users.findOne(Meteor.userId(), {
 			fields: {
 				'settings.preferences.roomsListExhibitionMode': 1,
-				'settings.preferences.mergeChannels': 1
+				'settings.preferences.groupByType': 1
 			}
 		});
-		const userPref = RocketChat.getUserPreference(user, 'roomsListExhibitionMode') === 'category' && RocketChat.getUserPreference(user, 'mergeChannels');
-		this.mergedChannels.set(userPref ? userPref : RocketChat.settings.get('UI_Merge_Channels_Groups'));
+		const userPref = RocketChat.getUserPreference(user, 'roomsListExhibitionMode') === 'category' && RocketChat.getUserPreference(user, 'groupByType');
+		this.groupedByType.set(userPref ? userPref : RocketChat.settings.get('UI_Group_Channels_By_Type'));
 	});
 });
diff --git a/packages/rocketchat-ui-sidenav/client/sortlist.html b/packages/rocketchat-ui-sidenav/client/sortlist.html
index ddb42354fbf..191651594b9 100644
--- a/packages/rocketchat-ui-sidenav/client/sortlist.html
+++ b/packages/rocketchat-ui-sidenav/client/sortlist.html
@@ -22,9 +22,9 @@
 		</ul>
 		<span class="rc-popover__divider"></span>
 		<ul class="rc-popover__list">
-			<li class="rc-popover__item {{bold 'mergeChannels'}}">
+			<li class="rc-popover__item {{bold 'groupByType'}}">
 				<label class="rc-popover__label">
-					<input type="checkbox" name="mergeChannels" class="hidden" checked="{{checked 'mergeChannels'}}"/>
+					<input type="checkbox" name="groupByType" class="hidden" checked="{{checked 'groupByType'}}"/>
 					<span class="rc-popover__icon">
 						{{> icon block="rc-popover__icon-element" icon='sort-amount-down' }}
 					</span>
diff --git a/packages/rocketchat-ui-sidenav/client/sortlist.js b/packages/rocketchat-ui-sidenav/client/sortlist.js
index 677f3f82f66..9d0c5289b97 100644
--- a/packages/rocketchat-ui-sidenav/client/sortlist.js
+++ b/packages/rocketchat-ui-sidenav/client/sortlist.js
@@ -5,9 +5,8 @@ const checked = function(prop, field) {
 	if (prop === 'sidebarShowFavorites') {
 		return RocketChat.getUserPreference(user, 'sidebarShowFavorites');
 	}
-	if (prop === 'mergeChannels') {
-		// TODO change mergeChannels to GroupByType
-		return !RocketChat.getUserPreference(user, 'mergeChannels');
+	if (prop === 'groupByType') {
+		return RocketChat.getUserPreference(user, 'groupByType');
 	}
 	if (prop === 'sidebarShowUnread') {
 		return RocketChat.getUserPreference(user, 'sidebarShowUnread');
diff --git a/server/methods/channelsList.js b/server/methods/channelsList.js
index 5f06002743b..d9cd88e255f 100644
--- a/server/methods/channelsList.js
+++ b/server/methods/channelsList.js
@@ -62,11 +62,12 @@ Meteor.methods({
 
 		if (channelType !== 'public' && RocketChat.authz.hasPermission(Meteor.userId(), 'view-p-room')) {
 			const user = Meteor.user();
-			const userPref = RocketChat.getUserPreference(user, 'mergeChannels') && RocketChat.getUserPreference(user, 'roomsListExhibitionMode') === 'category';
-			const globalPref = RocketChat.settings.get('UI_Merge_Channels_Groups');
-			const mergeChannels = userPref !== undefined ? userPref : globalPref;
+			const userPref = RocketChat.getUserPreference(user, 'groupByType') && RocketChat.getUserPreference(user, 'roomsListExhibitionMode') === 'category';
+			const globalPref = RocketChat.settings.get('UI_Group_Channels_By_Type');
+			// needs to negate globalPref because userPref represents its opposite
+			const groupByType = userPref !== undefined ? userPref : globalPref;
 
-			if (mergeChannels) {
+			if (!groupByType) {
 				roomTypes.push({
 					type: 'p',
 					username: user.username
diff --git a/server/methods/saveUserPreferences.js b/server/methods/saveUserPreferences.js
index e0a1b8b2c50..7088ae2d4f6 100644
--- a/server/methods/saveUserPreferences.js
+++ b/server/methods/saveUserPreferences.js
@@ -34,9 +34,9 @@ Meteor.methods({
 			muteFocusedConversations: Match.Optional(Boolean)
 		};
 		check(settings, Match.ObjectIncluding(keys));
-		if (settings.mergeChannels) {
+		if (settings.groupByType) {
 			check(settings, Match.ObjectIncluding({
-				mergeChannels: Match.OneOf(Number, Boolean) //eslint-disable-line new-cap
+				groupByType: Match.OneOf(Number, Boolean) //eslint-disable-line new-cap
 			}));
 		}
 		const user = Meteor.user();
@@ -59,8 +59,8 @@ Meteor.methods({
 			RocketChat.models.Users.setLanguage(user._id, settings.language);
 		}
 
-		if (settings.mergeChannels != null) {
-			settings.mergeChannels = ['1', true].includes(settings.mergeChannels);
+		if (settings.groupByType != null) {
+			settings.groupByType = ['1', true].includes(settings.groupByType);
 		}
 
 		if (settings.roomsListExhibitionMode != null) {
diff --git a/server/startup/migrations/v124.js b/server/startup/migrations/v124.js
new file mode 100644
index 00000000000..942dbe38633
--- /dev/null
+++ b/server/startup/migrations/v124.js
@@ -0,0 +1,29 @@
+RocketChat.Migrations.add({
+	version: 124,
+	up() {
+		RocketChat.models.Users.update({
+			'settings.preferences.mergeChannels': true
+		}, {
+			$unset: {
+				'settings.preferences.mergeChannels': 1
+			},
+			$set: {
+				'settings.preferences.groupByType': false
+			}
+		}, {
+			multi: true
+		});
+		RocketChat.models.Users.update({
+			'settings.preferences.mergeChannels': false
+		}, {
+			$unset: {
+				'settings.preferences.mergeChannels': 1
+			},
+			$set: {
+				'settings.preferences.groupByType': true
+			}
+		}, {
+			multi: true
+		});
+	}
+});