diff --git a/wp-includes/block-supports/background.php b/wp-includes/block-supports/background.php
index 4e7995f53f..6ef9bbb9a6 100644
--- a/wp-includes/block-supports/background.php
+++ b/wp-includes/block-supports/background.php
@@ -75,7 +75,7 @@ function wp_render_background_support( $block_content, $block ) {
 
 		// If the background size is set to `contain` and no position is set, set the position to `center`.
 		if ( 'contain' === $background_styles['backgroundSize'] && ! $background_styles['backgroundPosition'] ) {
-			$background_styles['backgroundPosition'] = 'center';
+			$background_styles['backgroundPosition'] = '50% 50%';
 		}
 	}
 
diff --git a/wp-includes/class-wp-theme-json.php b/wp-includes/class-wp-theme-json.php
index d05575b29d..cbe266bfad 100644
--- a/wp-includes/class-wp-theme-json.php
+++ b/wp-includes/class-wp-theme-json.php
@@ -2295,7 +2295,7 @@ class WP_Theme_JSON {
 	 *
 	 *     array(
 	 *       'name'  => 'property_name',
-	 *       'value' => 'property_value,
+	 *       'value' => 'property_value',
 	 *     )
 	 *
 	 * @since 5.8.0
@@ -2303,6 +2303,7 @@ class WP_Theme_JSON {
 	 * @since 6.1.0 Added `$theme_json`, `$selector`, and `$use_root_padding` parameters.
 	 * @since 6.5.0 Output a `min-height: unset` rule when `aspect-ratio` is set.
 	 * @since 6.6.0 Pass current theme JSON settings to wp_get_typography_font_size_value(), and process background properties.
+	 * @since 6.7.0 `ref` resolution of background properties, and assigning custom default values.
 	 *
 	 * @param array   $styles Styles to process.
 	 * @param array   $settings Theme settings.
@@ -2356,10 +2357,27 @@ class WP_Theme_JSON {
 				}
 			}
 
-			// Processes background styles.
-			if ( 'background' === $value_path[0] && isset( $styles['background'] ) ) {
-				$background_styles = wp_style_engine_get_styles( array( 'background' => $styles['background'] ) );
-				$value             = isset( $background_styles['declarations'][ $css_property ] ) ? $background_styles['declarations'][ $css_property ] : $value;
+			/*
+			 * Processes background image styles.
+			 * If the value is a URL, it will be converted to a CSS `url()` value.
+			 * For uploaded image (images with a database ID), apply size and position defaults,
+			 * equal to those applied in block supports in lib/background.php.
+			 */
+			if ( 'background-image' === $css_property && ! empty( $value ) ) {
+				$background_styles = wp_style_engine_get_styles(
+					array( 'background' => array( 'backgroundImage' => $value ) )
+				);
+				$value             = $background_styles['declarations'][ $css_property ];
+			}
+			if ( empty( $value ) && static::ROOT_BLOCK_SELECTOR !== $selector && ! empty( $styles['background']['backgroundImage']['id'] ) ) {
+				if ( 'background-size' === $css_property ) {
+					$value = 'cover';
+				}
+				// If the background size is set to `contain` and no position is set, set the position to `center`.
+				if ( 'background-position' === $css_property ) {
+					$background_size = $styles['background']['backgroundSize'] ?? null;
+					$value           = 'contain' === $background_size ? '50% 50%' : null;
+				}
 			}
 
 			// Skip if empty and not "0" or value represents array of longhand values.
@@ -2421,6 +2439,7 @@ class WP_Theme_JSON {
 	 *              to the standard form "--wp--preset--color--secondary".
 	 *              This is already done by the sanitize method,
 	 *              so every property will be in the standard form.
+	 * @since 6.7.0 Added support for background image refs.
 	 *
 	 * @param array $styles Styles subtree.
 	 * @param array $path   Which property to process.
@@ -2437,14 +2456,18 @@ class WP_Theme_JSON {
 
 		/*
 		 * This converts references to a path to the value at that path
-		 * where the values is an array with a "ref" key, pointing to a path.
+		 * where the value is an array with a "ref" key, pointing to a path.
 		 * For example: { "ref": "style.color.background" } => "#fff".
+		 * In the case of backgroundImage, if both a ref and a URL are present in the value,
+		 * the URL takes precedence and the ref is ignored.
 		 */
 		if ( is_array( $value ) && isset( $value['ref'] ) ) {
 			$value_path = explode( '.', $value['ref'] );
 			$ref_value  = _wp_array_get( $theme_json, $value_path );
+			// Background Image refs can refer to a string or an array containing a URL string.
+			$ref_value_url = $ref_value['url'] ?? null;
 			// Only use the ref value if we find anything.
-			if ( ! empty( $ref_value ) && is_string( $ref_value ) ) {
+			if ( ! empty( $ref_value ) && ( is_string( $ref_value ) || is_string( $ref_value_url ) ) ) {
 				$value = $ref_value;
 			}
 
@@ -3083,6 +3106,7 @@ class WP_Theme_JSON {
 	 *
 	 * @since 5.8.0
 	 * @since 5.9.0 Duotone preset also has origins.
+	 * @since 6.7.0 Replace background image objects during merge.
 	 *
 	 * @param WP_Theme_JSON $incoming Data to merge.
 	 */
@@ -3206,6 +3230,25 @@ class WP_Theme_JSON {
 				}
 			}
 		}
+
+		/*
+		 * Style values are merged at the leaf level, however
+		 * some values provide exceptions, namely style values that are
+		 * objects and represent unique definitions for the style.
+		 */
+		$style_nodes = static::get_styles_block_nodes();
+		foreach ( $style_nodes as $style_node ) {
+			$path = $style_node['path'];
+			/*
+			 * Background image styles should be replaced, not merged,
+			 * as they themselves are specific object definitions for the style.
+			 */
+			$background_image_path = array_merge( $path, static::PROPERTIES_METADATA['background-image'] );
+			$content               = _wp_array_get( $incoming_data, $background_image_path, null );
+			if ( isset( $content ) ) {
+				_wp_array_set( $this->theme_json, $background_image_path, $content );
+			}
+		}
 	}
 
 	/**
diff --git a/wp-includes/version.php b/wp-includes/version.php
index ce8d934093..38331689fd 100644
--- a/wp-includes/version.php
+++ b/wp-includes/version.php
@@ -16,7 +16,7 @@
  *
  * @global string $wp_version
  */
-$wp_version = '6.7-alpha-58935';
+$wp_version = '6.7-alpha-58936';
 
 /**
  * Holds the WordPress DB revision, increments when changes are made to the WordPress DB schema.