diff --git a/.chloggen/filestorage-panic.yaml b/.chloggen/filestorage-panic.yaml
new file mode 100644
index 0000000000000..5575216bf5d32
--- /dev/null
+++ b/.chloggen/filestorage-panic.yaml
@@ -0,0 +1,27 @@
+# Use this changelog template to create an entry for release notes.
+
+# One of 'breaking', 'deprecation', 'new_component', 'enhancement', 'bug_fix'
+change_type: bug_fix
+
+# The name of the component, or a single word describing the area of concern, (e.g. filelogreceiver)
+component: filestorageextension
+
+# A brief description of the change.  Surround your text with quotes ("") if it needs to start with a backtick (`).
+note: Add an option to recreate databse if the database file is corrupted.
+
+# Mandatory: One or more tracking issues related to the change. You can use the PR number here if no issue exists.
+issues: [35899]
+
+# (Optional) One or more lines of additional information to render under the primary note.
+# These lines will be padded with 2 spaces and then inserted directly into the document.
+# Use pipe (|) for multiline entries.
+subtext:
+
+# If your change doesn't affect end users or the exported elements of any package,
+# you should instead start your pull request title with [chore] or use the "Skip Changelog" label.
+# Optional: The change log or logs in which this entry should be included.
+# e.g. '[user]' or '[user, api]'
+# Include 'user' if the change is relevant to end users.
+# Include 'api' if there is a change to a library API.
+# Default: '[user]'
+change_logs: []
diff --git a/extension/storage/filestorage/README.md b/extension/storage/filestorage/README.md
index cea3a8c97bbc8..eab8faa805d5c 100644
--- a/extension/storage/filestorage/README.md
+++ b/extension/storage/filestorage/README.md
@@ -31,6 +31,10 @@ The default timeout is `1s`.
 By default, the directories will be created with `0750 (rwxr-x---)` permissions, minus the process umask.
 Use `directory_permissions` to customize directory creation permissions, minus the process umask.
 
+`recreate` when set, will rename the existing data storage to `{filename}.backup` and a new data file will be created from scratch. This option is useful if underlying database is corrupted and as a result, it can halt the entire collector process due to a panic. See (#36840)[https://github.com/open-telemetry/opentelemetry-collector-contrib/issues/36840] for more details.
+
+> [!Note]
+> Enabling `recreate` will regenerate the database files, which may lead to data duplication or data loss. 
 
 ## Compaction
 `compaction` defines how and when files should be compacted. There are two modes of compaction available (both of which can be set concurrently):
diff --git a/extension/storage/filestorage/config.go b/extension/storage/filestorage/config.go
index ef842a93b6163..c988a0eb957ab 100644
--- a/extension/storage/filestorage/config.go
+++ b/extension/storage/filestorage/config.go
@@ -31,6 +31,8 @@ type Config struct {
 	CreateDirectory            bool   `mapstructure:"create_directory,omitempty"`
 	DirectoryPermissions       string `mapstructure:"directory_permissions,omitempty"`
 	directoryPermissionsParsed int64  `mapstructure:"-,omitempty"`
+
+	Recreate bool `mapstructure:"recreate,omitempty"`
 }
 
 // CompactionConfig defines configuration for optional file storage compaction.
diff --git a/extension/storage/filestorage/extension.go b/extension/storage/filestorage/extension.go
index ff8ec568de83e..a2be454b49a06 100644
--- a/extension/storage/filestorage/extension.go
+++ b/extension/storage/filestorage/extension.go
@@ -71,6 +71,11 @@ func (lfs *localFileStorage) GetClient(_ context.Context, kind component.Kind, e
 
 	rawName = sanitize(rawName)
 	absoluteName := filepath.Join(lfs.cfg.Directory, rawName)
+	if lfs.cfg.Recreate {
+		if err := os.Rename(absoluteName, absoluteName+".backup"); err != nil {
+			return nil, fmt.Errorf("error renaming the database. Please remove %s manually: %w", absoluteName, err)
+		}
+	}
 	client, err := newClient(lfs.logger, absoluteName, lfs.cfg.Timeout, lfs.cfg.Compaction, !lfs.cfg.FSync)
 	if err != nil {
 		return nil, err
diff --git a/extension/storage/filestorage/extension_test.go b/extension/storage/filestorage/extension_test.go
index cc936b6b1e247..fd7b840ff11dd 100644
--- a/extension/storage/filestorage/extension_test.go
+++ b/extension/storage/filestorage/extension_test.go
@@ -612,3 +612,81 @@ func TestDirectoryCreation(t *testing.T) {
 		})
 	}
 }
+
+func TestRecreate(t *testing.T) {
+	ctx := context.Background()
+	temp := t.TempDir()
+	f := NewFactory()
+
+	config := f.CreateDefaultConfig().(*Config)
+	config.Directory = temp
+
+	// step 1: create an extension with default config and write some data
+	{
+		ext, err := f.Create(ctx, extensiontest.NewNopSettings(f.Type()), config)
+		require.NoError(t, err)
+		require.NotNil(t, ext)
+
+		se, ok := ext.(storage.Extension)
+		require.True(t, ok)
+
+		client, err := se.GetClient(ctx, component.KindReceiver, component.MustNewID("filelog"), "")
+		require.NoError(t, err)
+		require.NotNil(t, client)
+
+		// write the data and make sure it is set in the subsequent get.
+		require.NoError(t, client.Set(ctx, "key", []byte("val")))
+		val, err := client.Get(ctx, "key")
+		require.Equal(t, val, []byte("val"))
+		require.NoError(t, err)
+
+		// close the extension
+		require.NoError(t, client.Close(ctx))
+		require.NoError(t, ext.Shutdown(ctx))
+	}
+
+	// step 2: re-create the extension to make sure that the data is therw
+	{
+		ext, err := f.Create(ctx, extensiontest.NewNopSettings(f.Type()), config)
+		require.NoError(t, err)
+		require.NotNil(t, ext)
+		se, ok := ext.(storage.Extension)
+		require.True(t, ok)
+
+		client, err := se.GetClient(ctx, component.KindReceiver, component.MustNewID("filelog"), "")
+		require.NoError(t, err)
+		require.NotNil(t, client)
+
+		// make sure that the data exists from the previous pass.
+		val, err := client.Get(ctx, "key")
+		require.Equal(t, val, []byte("val"))
+		require.NoError(t, err)
+
+		// close the extension
+		require.NoError(t, client.Close(ctx))
+		require.NoError(t, ext.Shutdown(ctx))
+	}
+
+	// step 3: re-create the extension, but with Recreate=true and make sure that the data is not preset
+	{
+		config.Recreate = true
+		ext, err := f.Create(ctx, extensiontest.NewNopSettings(f.Type()), config)
+		require.NoError(t, err)
+		require.NotNil(t, ext)
+		se, ok := ext.(storage.Extension)
+		require.True(t, ok)
+
+		client, err := se.GetClient(ctx, component.KindReceiver, component.MustNewID("filelog"), "")
+		require.NoError(t, err)
+		require.NotNil(t, client)
+
+		// The data shouldn't exist.
+		val, err := client.Get(ctx, "key")
+		require.Nil(t, val)
+		require.NoError(t, err)
+
+		// close the extension
+		require.NoError(t, client.Close(ctx))
+		require.NoError(t, ext.Shutdown(ctx))
+	}
+}