How to Edit Document Template in SharePoint Library
With the updated document libraries in Microsoft SharePoint Online (MC996585), editing document templates have been removed. To edit templates, you must upload and overwrite.You can upload templates for Word, PowerPoint, and other apps to the + New menu in a SharePoint document library. This makes process-related templates readily available in your company. To edit these templates, simply overwrite them.

Apparently with Message ID MC996585, Microsoft is changing SharePoint document libraries in February 2025 through March 2025. Actions that were previously available, such as Edit, Change Content Type, and Delete, will no longer be available. Users must re-upload and replace the existing templates to edit them.

Edit Document Templates in SharePoint Document Libraries
Instead of editing the templates as before, you just need to upload them again and hit replace. When uploading, you must confirm by clicking on Replace.

Hide Document Templates from a SharePoint Library's New Menu
Instead of deleting document templates, they are now hidden from the menu. Unused templates will not be displayed.

Links
- 1: Microsoft SharePoint: Updated document libraries – admin role in Microsoft 365 is required to view message center posts
- 2: Message center in the Microsoft 365 admin center - Microsoft 365 admin | Microsoft Learn
- 3: Set a custom template for a SharePoint library - Microsoft Support