diff --git a/changelogs/fragments/1688-fix-auto-host-groups.yml b/changelogs/fragments/1688-fix-auto-host-groups.yml
new file mode 100644
index 0000000000..63770e995e
--- /dev/null
+++ b/changelogs/fragments/1688-fix-auto-host-groups.yml
@@ -0,0 +1,3 @@
+bugfixes:
+  - vmware_vm_inventory - Fixed unwanted hostgroups being created automatically when the with_path option is enabled.
+    (https://github.com/ansible-collections/community.vmware/issues/1688).
diff --git a/plugins/inventory/vmware_vm_inventory.py b/plugins/inventory/vmware_vm_inventory.py
index 2f3a7775e6..0ec5a38cd8 100644
--- a/plugins/inventory/vmware_vm_inventory.py
+++ b/plugins/inventory/vmware_vm_inventory.py
@@ -425,7 +425,6 @@
 from ansible.module_utils.common.dict_transformations import camel_dict_to_snake_dict
 from ansible.module_utils.common.dict_transformations import _snake_to_camel
 from ansible.utils.display import Display
-from ansible.module_utils.six import text_type
 from ansible_collections.community.vmware.plugins.plugin_utils.inventory import (
     to_nested_dict,
     to_flatten_dict,
@@ -929,26 +928,6 @@ def _populate_host_properties(self, host_properties, host):
         # Create groups based on variable values and add the corresponding hosts to it
         self._add_host_to_keyed_groups(self.get_option('keyed_groups'), host_properties, host, strict=strict)
 
-        with_path = self.get_option('with_path')
-        if with_path:
-            parents = host_properties['path'].split('/')
-            if parents:
-                if isinstance(with_path, text_type):
-                    parents = [with_path] + parents
-
-                c_name = self._sanitize_group_name('/'.join(parents))
-                c_group = self.inventory.add_group(c_name)
-                self.inventory.add_host(host, c_group)
-                parents.pop()
-
-                while len(parents) > 0:
-                    p_name = self._sanitize_group_name('/'.join(parents))
-                    p_group = self.inventory.add_group(p_name)
-
-                    self.inventory.add_child(p_group, c_group)
-                    c_group = p_group
-                    parents.pop()
-
         can_sanitize = self.get_option('with_sanitized_property_name')
 
         # Sanitize host properties: to snake case
diff --git a/tests/integration/targets/inventory_vmware_vm_inventory/playbook/test_options.yml b/tests/integration/targets/inventory_vmware_vm_inventory/playbook/test_options.yml
index 3861cc95b8..2651382b81 100644
--- a/tests/integration/targets/inventory_vmware_vm_inventory/playbook/test_options.yml
+++ b/tests/integration/targets/inventory_vmware_vm_inventory/playbook/test_options.yml
@@ -82,7 +82,7 @@
       assert:
         that:
           - "'path' in test_host.value"
-          - "'my_center' in test_host.value.group_names"
+          - "'my_center' in test_host.value.path"
 
     - name: Inventory 'with_nested_properties' option
       include_tasks: build_inventory.yml