diff --git a/changelogs/fragments/1078-postgresql_ext_fix_version_selection_when_version_is_latest.yml b/changelogs/fragments/1078-postgresql_ext_fix_version_selection_when_version_is_latest.yml
new file mode 100644
index 0000000000..1c72755dce
--- /dev/null
+++ b/changelogs/fragments/1078-postgresql_ext_fix_version_selection_when_version_is_latest.yml
@@ -0,0 +1,2 @@
+bugfixes:
+- postgresql_ext - fix version selection when ``version=latest`` (https://github.com/ansible-collections/community.general/pull/1078).
diff --git a/plugins/modules/database/postgresql/postgresql_ext.py b/plugins/modules/database/postgresql/postgresql_ext.py
index 867350c923..6a3dfdae6c 100644
--- a/plugins/modules/database/postgresql/postgresql_ext.py
+++ b/plugins/modules/database/postgresql/postgresql_ext.py
@@ -295,7 +295,7 @@ def ext_get_versions(cursor, ext):
     if current_version == '0':
         current_version = False
 
-    return (current_version, available_versions)
+    return (current_version, sorted(available_versions, key=LooseVersion))
 
 # ===========================================
 # Module execution.