Using Update Georeference in ArcMap moves a raster image to a different location

Description

When georeferencing a raster image using Update Georeference in ArcMap, the image moves to a different location.

Cause

• The 'Use world file to define the coordinates of the raster' option is checked. When the option is checked, ArcGIS reads the georeferencing information stored in a world file instead of the GeoTIFF file.
• This is a known issue logged by Esri as a defect, BUG-000111060.

Note:
BUG-000111060 appears to be specific to ArcMap 10.5.1 and is not reproducible at version 10.6.

Solution or Workaround

Use one of the following options to resolve the issue:

Rectify the raster file

Rectify the raster file. If this does not work, uncheck the Use world file to define the coordinates of the raster option. Follow the steps below:

1. Click the Customize menu and click ArcMap Options.
2. Click the Raster tab.
3. In the Raster Dataset tab, uncheck the Use world file to define the coordinates of the raster option.

Remove the image from the map

Remove the image from the map and delete the associated .tfwx, tif.aux.xml, and tif.ovr files. Georeference the .tif file and click Update Georeferencing. This generates new associated .tfwx, tif.aux.xml, and tif.ovr files.