Do this first, then replace the link.
You have the file embedded, and you want to save it as linked -- so of course it asks you were you want to save the file (because it will no longer be embedded).
no, I don't want to save it . Why would I if it's usually already always saved inside master file. I want to create a link to the original source file to have it shared among many other files in a project. So I have to overwrite it first? Kind of weird behavior.
ps, Thanks Willi Adelberger, looks like it's only way. Although it's extremely annoying and inconvenient. Why not make it normal as any 3d soft does with resource files?