diff --git a/panel/layout.py b/panel/layout.py
index ce00110cd5..ce0aca49cd 100644
--- a/panel/layout.py
+++ b/panel/layout.py
@@ -14,7 +14,7 @@
 
 from bokeh.models import (
     Box as BkBox, Column as BkColumn, Div as BkDiv, GridBox as BkGridBox,
-    Markup as BkMarkup, Row as BkRow, Spacer as BkSpacer
+    Row as BkRow, Spacer as BkSpacer
 )
 from bokeh.models.widgets import Tabs as BkTabs, Panel as BkPanel
 
@@ -904,6 +904,10 @@ def _get_objects(self, model, old_objects, doc, root, comm=None):
                 properties = {'width': w*width, 'height': h*height}
             else:
                 properties = {'sizing_mode': self.sizing_mode}
+                if 'width' in self.sizing_mode:
+                    properties['height'] = h*height
+                elif 'height' in self.sizing_mode:
+                    properties['width'] = w*width
             obj.set_param(**properties)
 
             if obj in old_objects:
@@ -914,17 +918,6 @@ def _get_objects(self, model, old_objects, doc, root, comm=None):
                 except RerenderError:
                     return self._get_objects(model, current_objects[:i], doc, root, comm)
 
-            if isinstance(child, BkMarkup) and self.sizing_mode not in ['fixed', None]:
-                if child.style is None:
-                    child.style = {}
-                style = {}
-                if 'width' not in child.style:
-                    style['width'] = '100%'
-                if 'height' not in child.style:
-                    style['height'] = '100%'
-                if style:
-                    child.style.update(style)
-
             if isinstance(child, BkBox) and len(child.children) == 1:
                 child.children[0].update(**properties)
             else:
diff --git a/panel/pane/base.py b/panel/pane/base.py
index 1e312b0d3d..aeb4e09249 100644
--- a/panel/pane/base.py
+++ b/panel/pane/base.py
@@ -315,6 +315,13 @@ def __init__(self, object=None, **params):
         self._pane = Pane(None)
         self._internal = True
         self._inner_layout = Row(self._pane, **{k: v for k, v in params.items() if k in Row.param})
+        self.param.watch(self._update_inner_layout, list(Layoutable.param))
+
+    def _update_inner_layout(self, *events):
+        for event in events:
+            setattr(self._pane, event.name, event.new)
+            if event.name in ['sizing_mode', 'width_policy', 'height_policy']:
+                setattr(self._inner_layout, event.name, event.new)
 
     def _update_pane(self, *events):
         """
diff --git a/panel/tests/test_layout.py b/panel/tests/test_layout.py
index 5c6813f834..d7b92e02ef 100644
--- a/panel/tests/test_layout.py
+++ b/panel/tests/test_layout.py
@@ -4,9 +4,12 @@
 
 from bokeh.models import (Div, Row as BkRow, Tabs as BkTabs,
                           Column as BkColumn, Panel as BkPanel)
+
+from panel.depends import depends
 from panel.layout import Column, Row, Tabs, Spacer, GridSpec, GridBox, WidgetBox
 from panel.pane import Bokeh, Pane
 from panel.param import Param
+from panel.widgets import IntSlider
 from panel.tests.util import check_layoutable_properties
 
 
@@ -1029,9 +1032,7 @@ def test_gridspec_stretch_with_int_setitem(document, comm):
     model = gspec.get_root(document, comm=comm)
     assert model.children == [(div1, 0, 0, 1, 1), (div2, 1, 1, 1, 1)]
     assert div1.sizing_mode == 'stretch_both'
-    assert div1.style == {'width': '100%', 'height': '100%'}
     assert div2.sizing_mode == 'stretch_both'
-    assert div2.style == {'width': '100%', 'height': '100%'}
 
 
 def test_gridspec_stretch_with_slice_setitem(document, comm):
@@ -1045,11 +1046,61 @@ def test_gridspec_stretch_with_slice_setitem(document, comm):
     model = gspec.get_root(document, comm=comm)
     assert model.children == [(div1, 0, 0, 1, 2), (div2, 1, 2, 1, 1)]
     assert div1.sizing_mode == 'stretch_both'
-    assert div1.style == {'width': '100%', 'height': '100%'}
     assert div2.sizing_mode == 'stretch_both'
-    assert div2.style == {'width': '100%', 'height': '100%'}
 
 
+def test_gridspec_fixed_with_replacement_pane(document, comm):
+    slider = IntSlider(start=0, end=2)
+
+    @depends(slider)
+    def div(value):
+        return Div(text=str(value))
+
+    gspec = GridSpec()
+
+    gspec[0, 0:2] = Div()
+    gspec[1, 2] = div
+
+    model = gspec.get_root(document, comm=comm)
+    ((div1, _, _, _, _), (row, _, _, _, _)) = model.children
+    div2 = row.children[0]
+    assert div1.width == 400
+    assert div1.height == 300
+    assert div2.width == 200
+    assert div2.height == 300
+
+    slider.value = 1
+    assert row.children[0] is not div2
+    assert row.children[0].width == 200
+    assert row.children[0].height == 300
+
+
+def test_gridspec_stretch_with_replacement_pane(document, comm):
+    slider = IntSlider(start=0, end=2)
+
+    @depends(slider)
+    def div(value):
+        return Div(text=str(value))
+
+    gspec = GridSpec(sizing_mode='stretch_width')
+
+    gspec[0, 0:2] = Div()
+    gspec[1, 2] = div
+
+    model = gspec.get_root(document, comm=comm)
+    ((div1, _, _, _, _), (row, _, _, _, _)) = model.children
+    div2 = row.children[0]
+    assert div1.sizing_mode == 'stretch_width'
+    assert div1.height == 300
+    assert div2.sizing_mode == 'stretch_width'
+    assert div2.height == 300
+
+    slider.value = 1
+    assert row.children[0] is not div2
+    assert row.children[0].sizing_mode == 'stretch_width'
+    assert row.children[0].height == 300
+    
+
 def test_widgetbox(document, comm):
     widget_box = WidgetBox("WidgetBox")