"The solution is already installed on this system as an unmanaged solution" error in Dynamics 365

When you attempt to import a solution in Dynamics 365, the import fails with the following message:

"The solution is already installed on this system as an unmanaged solution and the package supplied is attempting to install it in managed mode. Import can only update solutions when the modes match. Uninstall the current solution and try again.

Error code 80048040"

This error occurs if you are importing a managed solution into an organization where the solution already exists as unmanaged. 

Example: You create a new solution in your Dynamics 365 organization. When you create a new solution, it is an unmanaged solution. If you export this solution and choose to export it as managed and then try to import it into the same organization, you would encounter this error. If you had exported the solution as unmanaged, it would import successfully.

As mentioned in the error message, import can only update solutions when the modes match. This means that if you already have an unmanaged solution installed, you can only install another version of that solution that is also an unmanaged solution.

Import a copy of the solution that is the same mode. In the example provided in the Cause section, import would succeed if the solution being imported was an unmanaged solution.