diff --git a/src/Aspire.Cli/Commands/UpdateCommand.cs b/src/Aspire.Cli/Commands/UpdateCommand.cs
index 2f1fcbc324f..4fdd306ae0c 100644
--- a/src/Aspire.Cli/Commands/UpdateCommand.cs
+++ b/src/Aspire.Cli/Commands/UpdateCommand.cs
@@ -15,6 +15,7 @@
 using Aspire.Cli.Utils;
 using Microsoft.Extensions.Configuration;
 using Microsoft.Extensions.Logging;
+using Semver;
 using Spectre.Console;
 
 namespace Aspire.Cli.Commands;
@@ -312,6 +313,12 @@ protected override async Task<CommandResult> ExecuteAsync(ParseResult parseResul
                 ConfirmBinding = confirmBinding,
                 NuGetConfigDirBinding = nugetConfigDirBinding
             };
+            var cliUpdateResult = await TryUpdateCliBeforeGuestProjectUpdateAsync(project, projectFile, channel, confirmBinding, parseResult, cancellationToken);
+            if (cliUpdateResult is not null)
+            {
+                return cliUpdateResult;
+            }
+
             await project.UpdatePackagesAsync(updateContext, cancellationToken);
 
             // After successful project update, check if CLI update is available and prompt
@@ -382,6 +389,78 @@ protected override async Task<CommandResult> ExecuteAsync(ParseResult parseResul
         return CommandResult.FromExitCode(0);
     }
 
+    private async Task<CommandResult?> TryUpdateCliBeforeGuestProjectUpdateAsync(
+        IAppHostProject project,
+        FileInfo projectFile,
+        PackageChannel channel,
+        PromptBinding<bool> confirmBinding,
+        ParseResult parseResult,
+        CancellationToken cancellationToken)
+    {
+        if (_cliDownloader is null ||
+            string.IsNullOrEmpty(channel.CliDownloadBaseUrl) ||
+            project.LanguageId.Equals(KnownLanguageId.CSharp, StringComparison.OrdinalIgnoreCase) ||
+            projectFile.Directory is not { } projectDirectory)
+        {
+            return null;
+        }
+
+        var targetSdkVersion = await GetLatestGuestSdkVersionAsync(channel, projectDirectory, cancellationToken);
+        if (targetSdkVersion is null ||
+            !SemVersion.TryParse(VersionHelper.GetDefaultSdkVersion(), SemVersionStyles.Strict, out var currentCliVersion) ||
+            SemVersion.PrecedenceComparer.Compare(targetSdkVersion, currentCliVersion) <= 0)
+        {
+            return null;
+        }
+
+        var shouldUpdateCli = await InteractionService.PromptConfirmAsync(
+            UpdateCommandStrings.UpdateCliBeforeGuestProjectUpdatePrompt,
+            binding: confirmBinding,
+            cancellationToken: cancellationToken);
+
+        if (!shouldUpdateCli)
+        {
+            return null;
+        }
+
+        var dotNetToolUpdateCommand = GetDotNetToolUpdateCommand();
+        if (dotNetToolUpdateCommand is not null)
+        {
+            InteractionService.DisplayMessage(KnownEmojis.Information, UpdateCommandStrings.DotNetToolSelfUpdateMessage);
+            InteractionService.DisplayPlainText($"  {dotNetToolUpdateCommand}");
+            InteractionService.DisplayMessage(KnownEmojis.Information, UpdateCommandStrings.ProjectUpdateSkippedAfterCliUpdateMessage);
+            return CommandResult.Success();
+        }
+
+        var selfUpdateResult = await ExecuteSelfUpdateAsync(parseResult, cancellationToken, channel.Name);
+        if (selfUpdateResult.ExitCode == CliExitCodes.Success)
+        {
+            InteractionService.DisplayMessage(KnownEmojis.Information, UpdateCommandStrings.ProjectUpdateSkippedAfterCliUpdateMessage);
+        }
+
+        return selfUpdateResult;
+    }
+
+    private async Task<SemVersion?> GetLatestGuestSdkVersionAsync(PackageChannel channel, DirectoryInfo projectDirectory, CancellationToken cancellationToken)
+    {
+        try
+        {
+            var sdkPackage = await channel.GetLatestGuestAppHostSdkPackageAsync(projectDirectory, cancellationToken);
+            return sdkPackage is not null && SemVersion.TryParse(sdkPackage.Version, SemVersionStyles.Strict, out var version)
+                ? version
+                : null;
+        }
+        catch (OperationCanceledException)
+        {
+            throw;
+        }
+        catch (Exception ex)
+        {
+            _logger.LogWarning(ex, "Failed to check target Aspire SDK version before project update");
+            return null;
+        }
+    }
+
     private bool IsStagingChannelAvailable()
     {
         return KnownFeatures.IsStagingChannelEnabled(_features, _configuration)
diff --git a/src/Aspire.Cli/Packaging/PackageChannel.cs b/src/Aspire.Cli/Packaging/PackageChannel.cs
index e2e6e3b3320..0cce5207aa4 100644
--- a/src/Aspire.Cli/Packaging/PackageChannel.cs
+++ b/src/Aspire.Cli/Packaging/PackageChannel.cs
@@ -14,6 +14,8 @@ namespace Aspire.Cli.Packaging;
 
 internal class PackageChannel(string name, PackageChannelQuality quality, PackageMapping[]? mappings, INuGetPackageCache nuGetPackageCache, bool configureGlobalPackagesFolder = false, string? cliDownloadBaseUrl = null, string? pinnedVersion = null, ILogger? logger = null)
 {
+    private const string GuestAppHostSdkPackageId = "Aspire.Hosting";
+
     public string Name { get; } = name;
     public PackageChannelQuality Quality { get; } = quality;
     public PackageMapping[]? Mappings { get; } = mappings;
@@ -219,6 +221,31 @@ public async Task<IEnumerable<NuGetPackage>> GetPackagesAsync(string packageId,
         return filteredPackages;
     }
 
+    public async Task<NuGetPackage?> GetLatestGuestAppHostSdkPackageAsync(DirectoryInfo workingDirectory, CancellationToken cancellationToken)
+    {
+        // Guest AppHost sdk.version resolves to the base Aspire.Hosting package because
+        // the managed server restores that package to evaluate and generate the AppHost.
+        var packages = await GetPackagesAsync(GuestAppHostSdkPackageId, workingDirectory, cancellationToken);
+
+        NuGetPackage? latestPackage = null;
+        SemVersion? latestVersion = null;
+        foreach (var package in packages)
+        {
+            if (!SemVersion.TryParse(package.Version, SemVersionStyles.Strict, out var version))
+            {
+                continue;
+            }
+
+            if (latestVersion is null || SemVersion.PrecedenceComparer.Compare(version, latestVersion) > 0)
+            {
+                latestPackage = package;
+                latestVersion = version;
+            }
+        }
+
+        return latestPackage;
+    }
+
     public async Task<IEnumerable<NuGetPackage>> GetPackageVersionsAsync(string packageId, DirectoryInfo workingDirectory, CancellationToken cancellationToken)
     {
         var tasks = new List<Task<IEnumerable<NuGetPackage>>>();
diff --git a/src/Aspire.Cli/Projects/DotNetBasedAppHostServerProject.cs b/src/Aspire.Cli/Projects/DotNetBasedAppHostServerProject.cs
index 3541614949f..4c3d7c7d961 100644
--- a/src/Aspire.Cli/Projects/DotNetBasedAppHostServerProject.cs
+++ b/src/Aspire.Cli/Projects/DotNetBasedAppHostServerProject.cs
@@ -259,7 +259,8 @@ private XDocument CreateProjectFile(IEnumerable<IntegrationReference> integratio
     /// </summary>
     public async Task<(string ProjectPath, string? ChannelName)> CreateProjectFilesAsync(
         IEnumerable<IntegrationReference> integrations,
-        CancellationToken cancellationToken = default)
+        CancellationToken cancellationToken = default,
+        string? requestedChannel = null)
     {
         // Clean obj folder to ensure fresh NuGet restore
         var objPath = Path.Combine(_projectModelPath, "obj");
@@ -325,7 +326,8 @@ private XDocument CreateProjectFile(IEnumerable<IntegrationReference> integratio
             File.Copy(userNugetConfig, nugetConfigPath, overwrite: true);
         }
 
-        var configuredChannelName = AspireConfigFile.Load(_appPath)?.Channel
+        var configuredChannelName = requestedChannel
+            ?? AspireConfigFile.Load(_appPath)?.Channel
             ?? AspireJsonConfiguration.Load(_appPath)?.Channel;
         var channels = await _packagingService.GetChannelsAsync(cancellationToken, configuredChannelName);
 
@@ -422,9 +424,10 @@ private XDocument CreateProjectFile(IEnumerable<IntegrationReference> integratio
     public async Task<AppHostServerPrepareResult> PrepareAsync(
         string sdkVersion,
         IEnumerable<IntegrationReference> integrations,
-        CancellationToken cancellationToken = default)
+        CancellationToken cancellationToken = default,
+        string? requestedChannel = null)
     {
-        var (_, channelName) = await CreateProjectFilesAsync(integrations, cancellationToken);
+        var (_, channelName) = await CreateProjectFilesAsync(integrations, cancellationToken, requestedChannel);
         var (buildSuccess, buildOutput) = await BuildAsync(cancellationToken);
 
         if (!buildSuccess)
diff --git a/src/Aspire.Cli/Projects/GuestAppHostProject.cs b/src/Aspire.Cli/Projects/GuestAppHostProject.cs
index 637c07ec806..ee2829d9a32 100644
--- a/src/Aspire.Cli/Projects/GuestAppHostProject.cs
+++ b/src/Aspire.Cli/Projects/GuestAppHostProject.cs
@@ -224,9 +224,10 @@ private string GetPrepareSdkVersion(AspireConfigFile config)
         IAppHostServerProject appHostServerProject,
         string sdkVersion,
         List<IntegrationReference> integrations,
+        string? requestedChannel,
         CancellationToken cancellationToken)
     {
-        var result = await appHostServerProject.PrepareAsync(sdkVersion, integrations, cancellationToken);
+        var result = await appHostServerProject.PrepareAsync(sdkVersion, integrations, cancellationToken, requestedChannel);
         return (result.Success, result.Output, result.ChannelName, result.NeedsCodeGeneration);
     }
 
@@ -235,15 +236,22 @@ private string GetPrepareSdkVersion(AspireConfigFile config)
     /// </summary>
     /// <returns><see langword="true"/> if the code was generated successfully; otherwise, <see langword="false"/>.</returns>
     internal async Task<bool> BuildAndGenerateSdkAsync(DirectoryInfo directory, CancellationToken cancellationToken)
+    {
+        var config = LoadConfiguration(directory);
+        return await BuildAndGenerateSdkAsync(directory, config, cancellationToken);
+    }
+
+    private async Task<bool> BuildAndGenerateSdkAsync(DirectoryInfo directory, AspireConfigFile config, CancellationToken cancellationToken)
     {
         var appHostServerProject = await _appHostServerProjectFactory.CreateAsync(directory.FullName, cancellationToken);
 
-        // Step 1: Load config - source of truth for SDK version and packages
-        var config = LoadConfiguration(directory);
+        // Step 1: Use the supplied config as the source of truth. Update uses an
+        // in-memory config here so a failed generation does not leave
+        // aspire.config.json pinned to versions the current CLI cannot run.
         var integrations = await GetIntegrationReferencesAsync(config, directory, cancellationToken);
         var sdkVersion = GetPrepareSdkVersion(config);
 
-        var (buildSuccess, buildOutput, _, _) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, cancellationToken);
+        var (buildSuccess, buildOutput, _, _) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, config.Channel, cancellationToken);
         if (!buildSuccess)
         {
             if (buildOutput is not null)
@@ -356,7 +364,7 @@ public async Task<int> RunAsync(AppHostProjectContext context, CancellationToken
                 async () =>
                 {
                     // Prepare the AppHost server (build for dev mode, restore for prebuilt)
-                    var (prepareSuccess, prepareOutput, channelName, needsCodeGen) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, cancellationToken);
+                    var (prepareSuccess, prepareOutput, channelName, needsCodeGen) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, config.Channel, cancellationToken);
                     if (!prepareSuccess)
                     {
                         return (Success: false, Output: prepareOutput, Error: "Failed to prepare app host.", ChannelName: (string?)null, NeedsCodeGen: false);
@@ -880,7 +888,7 @@ public async Task<int> PublishAsync(PublishContext context, CancellationToken ca
             var sdkVersion = GetPrepareSdkVersion(config);
 
             // Prepare the AppHost server (build for dev mode, restore for prebuilt)
-            var (prepareSuccess, prepareOutput, _, needsCodeGen) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, cancellationToken);
+            var (prepareSuccess, prepareOutput, _, needsCodeGen) = await PrepareAppHostServerAsync(appHostServerProject, sdkVersion, integrations, config.Channel, cancellationToken);
             if (!prepareSuccess)
             {
                 // Set OutputCollector so PipelineCommandBase can display errors
@@ -1190,10 +1198,16 @@ public async Task<bool> AddPackageAsync(AddPackageContext context, CancellationT
 
         // Update configuration with the new package
         config.AddOrUpdatePackage(context.PackageId, context.PackageVersion);
-        SaveConfiguration(config, directory);
 
         // Build and regenerate SDK code with the new package
-        return await BuildAndGenerateSdkAsync(directory, cancellationToken);
+        var regenerateSuccess = await BuildAndGenerateSdkAsync(directory, config, cancellationToken);
+        if (!regenerateSuccess)
+        {
+            return false;
+        }
+
+        SaveConfiguration(config, directory);
+        return true;
     }
 
     /// <inheritdoc />
@@ -1219,11 +1233,7 @@ public async Task<UpdatePackagesResult> UpdatePackagesAsync(UpdatePackagesContex
                 // Check for SDK version update (silently - it's an implementation detail)
                 try
                 {
-                    var sdkPackages = await context.Channel.GetPackagesAsync("Aspire.Hosting", directory, cancellationToken);
-                    var latestSdkPackage = sdkPackages
-                        .Where(p => SemVersion.TryParse(p.Version, SemVersionStyles.Strict, out _))
-                        .OrderByDescending(p => SemVersion.Parse(p.Version, SemVersionStyles.Strict), SemVersion.PrecedenceComparer)
-                        .FirstOrDefault();
+                    var latestSdkPackage = await context.Channel.GetLatestGuestAppHostSdkPackageAsync(directory, cancellationToken);
 
                     if (latestSdkPackage is not null && latestSdkPackage.Version != config.SdkVersion)
                     {
@@ -1314,15 +1324,13 @@ public async Task<UpdatePackagesResult> UpdatePackagesAsync(UpdatePackagesContex
         {
             config.AddOrUpdatePackage(packageId, newVersion);
         }
-        SaveConfiguration(config, directory);
-
         // Rebuild and regenerate SDK code with updated packages
         _interactionService.DisplayEmptyLine();
         var regenerateResult = await _interactionService.ShowStatusAsync(
             UpdateCommandStrings.RegeneratingSdkCode,
             async () =>
             {
-                var regenerateSuccess = await BuildAndGenerateSdkAsync(directory, cancellationToken);
+                var regenerateSuccess = await BuildAndGenerateSdkAsync(directory, config, cancellationToken);
 
                 if (!regenerateSuccess)
                 {
@@ -1337,6 +1345,8 @@ public async Task<UpdatePackagesResult> UpdatePackagesAsync(UpdatePackagesContex
             return regenerateResult;
         }
 
+        SaveConfiguration(config, directory);
+
         _interactionService.DisplayMessage(KnownEmojis.Package, UpdateCommandStrings.RegeneratedSdkCode);
 
         _interactionService.DisplayEmptyLine();
diff --git a/src/Aspire.Cli/Projects/IAppHostServerProject.cs b/src/Aspire.Cli/Projects/IAppHostServerProject.cs
index a5fc0730826..a5e81a871df 100644
--- a/src/Aspire.Cli/Projects/IAppHostServerProject.cs
+++ b/src/Aspire.Cli/Projects/IAppHostServerProject.cs
@@ -41,11 +41,13 @@ internal interface IAppHostServerProject
     /// <param name="sdkVersion">The Aspire SDK version to use.</param>
     /// <param name="integrations">The integration references (NuGet packages and/or project references) required by the app host.</param>
     /// <param name="cancellationToken">Cancellation token.</param>
+    /// <param name="requestedChannel">The package channel to use for this prepare operation, or <see langword="null" /> to use the project configuration.</param>
     /// <returns>The preparation result indicating success/failure and any output.</returns>
     Task<AppHostServerPrepareResult> PrepareAsync(
         string sdkVersion,
         IEnumerable<IntegrationReference> integrations,
-        CancellationToken cancellationToken = default);
+        CancellationToken cancellationToken = default,
+        string? requestedChannel = null);
 
     /// <summary>
     /// Runs the AppHost server process.
diff --git a/src/Aspire.Cli/Projects/PrebuiltAppHostServer.cs b/src/Aspire.Cli/Projects/PrebuiltAppHostServer.cs
index 79e44fc9fd5..a082f06acc0 100644
--- a/src/Aspire.Cli/Projects/PrebuiltAppHostServer.cs
+++ b/src/Aspire.Cli/Projects/PrebuiltAppHostServer.cs
@@ -123,12 +123,12 @@ public string GetServerPath()
     public async Task<AppHostServerPrepareResult> PrepareAsync(
         string sdkVersion,
         IEnumerable<IntegrationReference> integrations,
-        CancellationToken cancellationToken = default)
+        CancellationToken cancellationToken = default,
+        string? requestedChannel = null)
     {
         var integrationList = integrations.ToList();
         var packageRefs = integrationList.Where(r => r.IsPackageReference).ToList();
         var projectRefs = integrationList.Where(r => r.IsProjectReference).ToList();
-        string? requestedChannel = null;
 
         try
         {
@@ -140,7 +140,7 @@ public async Task<AppHostServerPrepareResult> PrepareAsync(
             // Resolve the channel the project requests for restore (aspire.config.json#channel,
             // with a legacy .aspire/settings.json#channel fallback). This is independent of the
             // running CLI's identity hive (CliExecutionContext.IdentityChannel).
-            requestedChannel = ResolveRequestedChannel();
+            requestedChannel ??= ResolveRequestedChannel();
 
             if (projectRefs.Count > 0)
             {
diff --git a/src/Aspire.Cli/Resources/UpdateCommandStrings.Designer.cs b/src/Aspire.Cli/Resources/UpdateCommandStrings.Designer.cs
index 93207cc6173..8a08ecd0103 100644
--- a/src/Aspire.Cli/Resources/UpdateCommandStrings.Designer.cs
+++ b/src/Aspire.Cli/Resources/UpdateCommandStrings.Designer.cs
@@ -102,11 +102,13 @@ internal static string ProjectArgumentDescription {
     internal static string FallbackParsingWarning => ResourceManager.GetString("FallbackParsingWarning", resourceCulture);
     internal static string NoAppHostFoundUpdateCliPrompt => ResourceManager.GetString("NoAppHostFoundUpdateCliPrompt", resourceCulture);
     internal static string UpdateCliAfterProjectUpdatePrompt => ResourceManager.GetString("UpdateCliAfterProjectUpdatePrompt", resourceCulture);
+    internal static string UpdateCliBeforeGuestProjectUpdatePrompt => ResourceManager.GetString("UpdateCliBeforeGuestProjectUpdatePrompt", resourceCulture);
     internal static string ChannelOptionDescription => ResourceManager.GetString("ChannelOptionDescription", resourceCulture);
     internal static string ChannelOptionDescriptionWithStaging => ResourceManager.GetString("ChannelOptionDescriptionWithStaging", resourceCulture);
     internal static string QualityOptionDescription => ResourceManager.GetString("QualityOptionDescription", resourceCulture);
     internal static string QualityOptionDescriptionWithStaging => ResourceManager.GetString("QualityOptionDescriptionWithStaging", resourceCulture);
     internal static string DotNetToolSelfUpdateMessage => ResourceManager.GetString("DotNetToolSelfUpdateMessage", resourceCulture);
+    internal static string ProjectUpdateSkippedAfterCliUpdateMessage => ResourceManager.GetString("ProjectUpdateSkippedAfterCliUpdateMessage", resourceCulture);
     internal static string MigratedToNewSdkFormat => ResourceManager.GetString("MigratedToNewSdkFormat", resourceCulture);
     internal static string RemovedObsoleteAppHostPackage => ResourceManager.GetString("RemovedObsoleteAppHostPackage", resourceCulture);
     internal static string NoWritePermissionToInstallDirectory => ResourceManager.GetString("NoWritePermissionToInstallDirectory", resourceCulture);
diff --git a/src/Aspire.Cli/Resources/UpdateCommandStrings.resx b/src/Aspire.Cli/Resources/UpdateCommandStrings.resx
index 2329e5a85a4..bb501cdadc1 100644
--- a/src/Aspire.Cli/Resources/UpdateCommandStrings.resx
+++ b/src/Aspire.Cli/Resources/UpdateCommandStrings.resx
@@ -123,6 +123,9 @@
   <data name="UpdateCliAfterProjectUpdatePrompt" xml:space="preserve">
     <value>An update is available for the Aspire CLI. Would you like to update it now?</value>
   </data>
+  <data name="UpdateCliBeforeGuestProjectUpdatePrompt" xml:space="preserve">
+    <value>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</value>
+  </data>
   <data name="ChannelOptionDescription" xml:space="preserve">
     <value>Channel to update to (stable, daily)</value>
   </data>
@@ -138,6 +141,9 @@
   <data name="DotNetToolSelfUpdateMessage" xml:space="preserve">
     <value>To update the Aspire CLI when installed as a .NET tool, run:</value>
   </data>
+  <data name="ProjectUpdateSkippedAfterCliUpdateMessage" xml:space="preserve">
+    <value>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</value>
+  </data>
   <data name="MigratedToNewSdkFormat" xml:space="preserve">
     <value>Migrated to new project format: &lt;Project Sdk="Aspire.AppHost.Sdk/{0}"&gt;</value>
   </data>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.cs.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.cs.xlf
index 8a67bad785b..def7570fdb1 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.cs.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.cs.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Projekt je aktuální! (nejsou potřeba žádné aktualizace)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Úroveň kvality, na kterou se má aktualizovat (stabilní, denní)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Pro Aspire CLI je k dispozici aktualizace. Chcete aktualizaci provést nyní?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Aktualizovat balíček {0} z {1} na {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.de.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.de.xlf
index 061cd606b25..539a13c0821 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.de.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.de.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Das Projekt ist auf dem neuesten Stand. (keine Updates erforderlich)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Qualitätsstufe, auf die aktualisiert werden soll (stable, daily)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Für die Aspire-CLI ist ein Update verfügbar. Möchten Sie es jetzt installieren?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Paket {0} von {1} auf {2} aktualisieren</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.es.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.es.xlf
index 4d0956fdb7a..940b96a556e 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.es.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.es.xlf
@@ -207,6 +207,11 @@
         <target state="translated">¡El proyecto está al día! (no es necesario actualizar)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Nivel de calidad a actualizar a (estable, diario)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Hay una actualización disponible para la CLI de Aspire. ¿Quieres actualizarla ahora?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Actualizar paquete {0} de {1} a {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.fr.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.fr.xlf
index 91267ce4020..84ae03bf882 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.fr.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.fr.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Le projet est à jour ! (aucune mise à jour nécessaire)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Niveau de qualité vers lequel effectuer une mise à jour (stable, quotidien)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Une mise à jour est disponible pour l’interface CLI Aspire. Voulez-vous la mettre à jour maintenant ?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Mettre à jour le package {0} de {1} à {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.it.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.it.xlf
index adff171d6fd..05ded928e67 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.it.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.it.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Il progetto è aggiornato. (non sono necessari aggiornamenti)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Livello di qualità da aggiornare a (stabile, giornaliero)</target>
@@ -267,6 +272,11 @@
         <target state="translated">È disponibile un aggiornamento per l'interfaccia della riga di comando Aspire. Aggiornarla ora?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Aggiorna il pacchetto {0} da {1} a {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ja.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ja.xlf
index f962c19dad5..150654e3253 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ja.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ja.xlf
@@ -207,6 +207,11 @@
         <target state="translated">プロジェクトは最新の状態です!(更新は必要ありません)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">更新先の品質レベル (安定、毎日)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Aspire CLI の更新プログラムが利用可能です。今すぐ更新しますか?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">パッケージ {0} を {1} から {2} に更新する</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ko.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ko.xlf
index b151ff2c3d0..c27ec7f92e2 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ko.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ko.xlf
@@ -207,6 +207,11 @@
         <target state="translated">프로젝트가 최신 상태입니다! (업데이트 필요 없음)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">업데이트할 품질 수준(안정, 데일리)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Aspire CLI 업데이트가 있습니다. 지금 업데이트하시겠어요?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">패키지 {0}을(를) {1}에서 {2}(으)로 업데이트</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pl.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pl.xlf
index ce41cc99244..1ef6a68136e 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pl.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pl.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Projekt jest aktualny. (nie są wymagane żadne aktualizacje)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Poziom jakości, do którego należy zaktualizować (stabilny, dzienny)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Dostępna jest aktualizacja narzędzia Aspire CLI. Czy chcesz teraz zaktualizować?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Aktualizacja {0} z {1} do {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pt-BR.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pt-BR.xlf
index 0f2fb277160..d808bf6c77c 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pt-BR.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.pt-BR.xlf
@@ -207,6 +207,11 @@
         <target state="translated">O Project foi atualizado! (nenhuma atualização necessária)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Nível de qualidade para o qual atualizar (estável, diariamente)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Há uma atualização disponível para a CLI do Aspire. Você quer atualizá-la agora?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Atualizar o pacote {0} de {1} para {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ru.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ru.xlf
index 1084ea024b9..c050aa41ba6 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ru.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.ru.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Проект обновлен! (обновления не требуются)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Уровень качества для обновления (стабильный, ежедневно)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Доступно обновление для Aspire CLI. Хотите обновить его сейчас?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">Обновить пакет {0} с{1} до {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.tr.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.tr.xlf
index c3a644be0e5..4edb515403c 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.tr.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.tr.xlf
@@ -207,6 +207,11 @@
         <target state="translated">Proje güncel! (güncelleştirme gerekmiyor)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">Güncelleştirilecek kalite seviyesi (kararlı, günlük)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Aspire CLI için bir güncelleştirme var. Şimdi güncelleştirmek istiyor musunuz?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">{1} olan {0} paketini {2} olarak güncelleyin</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hans.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hans.xlf
index 8ebb4e826df..dd7d9a7f972 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hans.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hans.xlf
@@ -207,6 +207,11 @@
         <target state="translated">项目已是最新!(无需更新)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">要更新到的质量级别(稳定、每日)</target>
@@ -267,6 +272,11 @@
         <target state="translated">Aspire CLI 有可用更新。是否现在更新?</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">将包 {0} 从 {1} 更新为 {2}</target>
diff --git a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hant.xlf b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hant.xlf
index cdee5937beb..28ef1af6893 100644
--- a/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hant.xlf
+++ b/src/Aspire.Cli/Resources/xlf/UpdateCommandStrings.zh-Hant.xlf
@@ -207,6 +207,11 @@
         <target state="translated">專案為最新!(不需要更新)</target>
         <note />
       </trans-unit>
+      <trans-unit id="ProjectUpdateSkippedAfterCliUpdateMessage">
+        <source>Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</source>
+        <target state="new">Project update skipped. Update the Aspire CLI, then re-run `aspire update`.</target>
+        <note />
+      </trans-unit>
       <trans-unit id="QualityOptionDescription">
         <source>Quality level to update to (stable, daily)</source>
         <target state="translated">要更新的品質等級 (穩定、每日)</target>
@@ -267,6 +272,11 @@
         <target state="translated">更新可用於 Aspire CLI。您現在要更新嗎？</target>
         <note />
       </trans-unit>
+      <trans-unit id="UpdateCliBeforeGuestProjectUpdatePrompt">
+        <source>The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</source>
+        <target state="new">The selected Aspire SDK is newer than this Aspire CLI. Update the Aspire CLI now and re-run `aspire update` to update this project?</target>
+        <note />
+      </trans-unit>
       <trans-unit id="UpdatePackageFormat">
         <source>Update package {0} from {1} to {2}</source>
         <target state="translated">將套件 {0} 從 {1} 更新到 {2}</target>
diff --git a/tests/Aspire.Cli.Tests/Commands/UpdateCommandTests.cs b/tests/Aspire.Cli.Tests/Commands/UpdateCommandTests.cs
index 3997b86c3d3..3093088d36b 100644
--- a/tests/Aspire.Cli.Tests/Commands/UpdateCommandTests.cs
+++ b/tests/Aspire.Cli.Tests/Commands/UpdateCommandTests.cs
@@ -308,6 +308,178 @@ public async Task UpdateCommand_WhenProjectUpdatedSuccessfully_AndChannelSupport
         Assert.Equal(CliExitCodes.Success, exitCode);
     }
 
+    [Fact]
+    public async Task UpdateCommand_GuestProject_WhenTargetSdkNewerThanCli_PromptsForCliUpdateBeforeProjectUpdateAndSkipsWhenAccepted()
+    {
+        using var workspace = TemporaryWorkspace.Create(outputHelper);
+        using var processPathScope = DotNetToolDetection.UseProcessPathForTesting("/home/test/.dotnet/tools/.store/aspire.cli/9.4.0/aspire.cli.linux-x64/9.4.0/tools/net10.0/linux-x64/aspire");
+        var appHostPath = Path.Combine(workspace.WorkspaceRoot.FullName, "apphost.ts");
+        File.WriteAllText(appHostPath, "// test apphost");
+
+        var updateProjectInvoked = false;
+        string? confirmPrompt = null;
+        var interactionService = new TestInteractionService
+        {
+            ConfirmCallback = (prompt, _) =>
+            {
+                confirmPrompt = prompt;
+                return true;
+            }
+        };
+
+        var services = CliTestHelper.CreateServiceCollection(workspace, outputHelper, options =>
+        {
+            options.ProjectLocatorFactory = _ => new TestProjectLocator()
+            {
+                UseOrFindAppHostProjectFileAsyncCallback = (_, _, _) => Task.FromResult<FileInfo?>(new FileInfo(appHostPath))
+            };
+
+            options.AppHostProjectFactory = _ => new TestAppHostProjectFactory
+            {
+                CanHandleCallback = _ => true,
+                LanguageId = "typescript/nodejs",
+                DisplayName = "TypeScript (Node.js)",
+                DetectionPatterns = ["apphost.ts"],
+                UpdatePackagesAsyncCallback = (_, _) =>
+                {
+                    updateProjectInvoked = true;
+                    return Task.FromResult(new UpdatePackagesResult { UpdatesApplied = true });
+                }
+            };
+
+            options.InteractionServiceFactory = _ => interactionService;
+            options.PackagingServiceFactory = _ => new TestPackagingService
+            {
+                GetChannelsAsyncCallback = _ => Task.FromResult<IEnumerable<PackageChannel>>(
+                    [CreatePackageChannelWithGuestSdkVersion("99.0.0", cliDownloadBaseUrl: "https://example.test/aspire")])
+            };
+        });
+
+        using var provider = services.BuildServiceProvider();
+        var command = provider.GetRequiredService<RootCommand>();
+        var result = command.Parse("update --apphost apphost.ts");
+
+        var exitCode = await result.InvokeAsync().DefaultTimeout();
+
+        Assert.Equal(CliExitCodes.Success, exitCode);
+        Assert.False(updateProjectInvoked);
+        Assert.NotNull(confirmPrompt);
+        Assert.Contains("newer than this Aspire CLI", confirmPrompt);
+        Assert.Contains("re-run `aspire update`", confirmPrompt);
+        Assert.Contains(interactionService.DisplayedPlainText, text => text.Contains("dotnet tool update -g Aspire.Cli", StringComparison.Ordinal));
+        Assert.Contains(interactionService.DisplayedMessages, message => message.Message.Contains("Project update skipped", StringComparison.Ordinal));
+    }
+
+    [Fact]
+    public async Task UpdateCommand_GuestProject_WhenTargetSdkNewerThanCliAndCliUpdateDeclined_ContinuesProjectUpdate()
+    {
+        using var workspace = TemporaryWorkspace.Create(outputHelper);
+        var appHostPath = Path.Combine(workspace.WorkspaceRoot.FullName, "apphost.ts");
+        File.WriteAllText(appHostPath, "// test apphost");
+
+        var updateProjectInvoked = false;
+        var confirmCallbackInvoked = false;
+        var services = CliTestHelper.CreateServiceCollection(workspace, outputHelper, options =>
+        {
+            options.ProjectLocatorFactory = _ => new TestProjectLocator()
+            {
+                UseOrFindAppHostProjectFileAsyncCallback = (_, _, _) => Task.FromResult<FileInfo?>(new FileInfo(appHostPath))
+            };
+
+            options.AppHostProjectFactory = _ => new TestAppHostProjectFactory
+            {
+                CanHandleCallback = _ => true,
+                LanguageId = "typescript/nodejs",
+                DisplayName = "TypeScript (Node.js)",
+                DetectionPatterns = ["apphost.ts"],
+                UpdatePackagesAsyncCallback = (_, _) =>
+                {
+                    updateProjectInvoked = true;
+                    return Task.FromResult(new UpdatePackagesResult { UpdatesApplied = true });
+                }
+            };
+
+            options.InteractionServiceFactory = _ => new TestInteractionService
+            {
+                ConfirmCallback = (_, _) =>
+                {
+                    confirmCallbackInvoked = true;
+                    return false;
+                }
+            };
+            options.PackagingServiceFactory = _ => new TestPackagingService
+            {
+                GetChannelsAsyncCallback = _ => Task.FromResult<IEnumerable<PackageChannel>>(
+                    [CreatePackageChannelWithGuestSdkVersion("99.0.0", cliDownloadBaseUrl: "https://example.test/aspire")])
+            };
+        });
+
+        using var provider = services.BuildServiceProvider();
+        var command = provider.GetRequiredService<RootCommand>();
+        var result = command.Parse("update --apphost apphost.ts");
+
+        var exitCode = await result.InvokeAsync().DefaultTimeout();
+
+        Assert.Equal(CliExitCodes.Success, exitCode);
+        Assert.True(confirmCallbackInvoked);
+        Assert.True(updateProjectInvoked);
+    }
+
+    [Fact]
+    public async Task UpdateCommand_GuestProject_WhenChannelCannotDownloadCli_DoesNotPromptBeforeProjectUpdate()
+    {
+        using var workspace = TemporaryWorkspace.Create(outputHelper);
+        var appHostPath = Path.Combine(workspace.WorkspaceRoot.FullName, "apphost.ts");
+        File.WriteAllText(appHostPath, "// test apphost");
+
+        var updateProjectInvoked = false;
+        var confirmCallbackInvoked = false;
+        var services = CliTestHelper.CreateServiceCollection(workspace, outputHelper, options =>
+        {
+            options.ProjectLocatorFactory = _ => new TestProjectLocator()
+            {
+                UseOrFindAppHostProjectFileAsyncCallback = (_, _, _) => Task.FromResult<FileInfo?>(new FileInfo(appHostPath))
+            };
+
+            options.AppHostProjectFactory = _ => new TestAppHostProjectFactory
+            {
+                CanHandleCallback = _ => true,
+                LanguageId = "typescript/nodejs",
+                DisplayName = "TypeScript (Node.js)",
+                DetectionPatterns = ["apphost.ts"],
+                UpdatePackagesAsyncCallback = (_, _) =>
+                {
+                    updateProjectInvoked = true;
+                    return Task.FromResult(new UpdatePackagesResult { UpdatesApplied = true });
+                }
+            };
+
+            options.InteractionServiceFactory = _ => new TestInteractionService
+            {
+                ConfirmCallback = (_, _) =>
+                {
+                    confirmCallbackInvoked = true;
+                    return false;
+                }
+            };
+            options.PackagingServiceFactory = _ => new TestPackagingService
+            {
+                GetChannelsAsyncCallback = _ => Task.FromResult<IEnumerable<PackageChannel>>(
+                    [CreatePackageChannelWithGuestSdkVersion("99.0.0", cliDownloadBaseUrl: null)])
+            };
+        });
+
+        using var provider = services.BuildServiceProvider();
+        var command = provider.GetRequiredService<RootCommand>();
+        var result = command.Parse("update --apphost apphost.ts");
+
+        var exitCode = await result.InvokeAsync().DefaultTimeout();
+
+        Assert.Equal(CliExitCodes.Success, exitCode);
+        Assert.False(confirmCallbackInvoked);
+        Assert.True(updateProjectInvoked);
+    }
+
     [Fact]
     public async Task UpdateCommand_WhenProjectUpdatedSuccessfullyAndRunningAsDotnetTool_DisplaysDotnetToolUpdateCommand()
     {
@@ -2392,6 +2564,26 @@ public async Task UpdateCommand_SelfUpdate_DoesNotWriteChannelToGlobalConfigurat
     // to roll back any prior write. That rollback path is covered by the stable row of
     // UpdateCommand_SelfUpdate_DoesNotWriteChannelToGlobalConfiguration above (asserts both
     // DoesNotContain set + DoesNotContain delete) — no standalone test required here.
+
+    private static PackageChannel CreatePackageChannelWithGuestSdkVersion(string sdkVersion, string? cliDownloadBaseUrl)
+    {
+        var fakeCache = new FakeNuGetPackageCache
+        {
+            GetPackagesAsyncCallback = (_, packageId, _, _, _, _, _) =>
+                Task.FromResult<IEnumerable<Aspire.Shared.NuGetPackageCli>>(
+                [
+                    new Aspire.Shared.NuGetPackageCli { Id = packageId, Version = sdkVersion, Source = "test" }
+                ])
+        };
+
+        return PackageChannel.CreateExplicitChannel(
+            "stable",
+            PackageChannelQuality.Stable,
+            [new PackageMapping("Aspire*", "https://api.nuget.org/v3/index.json")],
+            fakeCache,
+            configureGlobalPackagesFolder: false,
+            cliDownloadBaseUrl: cliDownloadBaseUrl);
+    }
 }
 
 // Helper class to track DisplayCancellationMessage calls
diff --git a/tests/Aspire.Cli.Tests/Projects/AppHostServerSessionTests.cs b/tests/Aspire.Cli.Tests/Projects/AppHostServerSessionTests.cs
index 71bf1ee28e6..26a119f1848 100644
--- a/tests/Aspire.Cli.Tests/Projects/AppHostServerSessionTests.cs
+++ b/tests/Aspire.Cli.Tests/Projects/AppHostServerSessionTests.cs
@@ -133,7 +133,8 @@ private sealed class RecordingAppHostServerProject : IAppHostServerProject
         public Task<AppHostServerPrepareResult> PrepareAsync(
             string sdkVersion,
             IEnumerable<IntegrationReference> integrations,
-            CancellationToken cancellationToken = default) =>
+            CancellationToken cancellationToken = default,
+            string? requestedChannel = null) =>
             throw new NotSupportedException();
 
         public (string SocketPath, Process Process, OutputCollector OutputCollector) Run(
diff --git a/tests/Aspire.Cli.Tests/Projects/GuestAppHostProjectTests.cs b/tests/Aspire.Cli.Tests/Projects/GuestAppHostProjectTests.cs
index e8b3f73c711..a00f348c5fd 100644
--- a/tests/Aspire.Cli.Tests/Projects/GuestAppHostProjectTests.cs
+++ b/tests/Aspire.Cli.Tests/Projects/GuestAppHostProjectTests.cs
@@ -544,25 +544,19 @@ public void CreateGuestEnvironmentVariables_AspireEnvironmentTakesPrecedenceOver
     }
 
     /// <summary>
-    /// Regression test for wf3: <c>aspire update</c> on a project with an Implicit channel
-    /// (i.e. the user has not pinned a channel via <c>--channel</c>, per-project
-    /// <c>aspire.config.json#channel</c>, or a prompt selection) must NOT silently pin the
-    /// running CLI's identity channel into <c>aspire.config.json#channel</c>.
+    /// Regression test for issue #17077: <c>aspire update</c> must not leave
+    /// <c>aspire.config.json</c> advanced to newer package versions when guest SDK
+    /// regeneration fails.
     /// </summary>
     /// <remarks>
     /// The test drives <see cref="GuestAppHostProject.UpdatePackagesAsync"/> through the
-    /// code path that detects updates and saves the config to disk, then expects the call
-    /// to throw from <c>BuildAndGenerateSdkAsync</c> (because
-    /// <see cref="TestAppHostServerProjectFactory.CreateAsync"/> throws). The channel save
-    /// happens before that throw, so we can inspect the on-disk
-    /// <c>aspire.config.json#channel</c> to assert it was NOT changed.
+    /// code path that detects updates, then expects the call to throw from
+    /// <c>BuildAndGenerateSdkAsync</c> because <see cref="TestAppHostServerProjectFactory.CreateAsync"/>
+    /// throws. The on-disk config should still contain the original versions.
     /// </remarks>
     [Fact]
-    public async Task UpdatePackagesAsync_ImplicitChannel_DoesNotPinIdentityIntoConfig()
+    public async Task UpdatePackagesAsync_WhenRegenerationFails_DoesNotMutateConfig()
     {
-        // Seed aspire.config.json with no channel pinned, an SDK version that is behind,
-        // and a single package entry. The fake nuget cache will return a newer version so
-        // the early "nothing to update" return is not taken.
         var configPath = Path.Combine(_workspace.WorkspaceRoot.FullName, AspireConfigFile.FileName);
         await File.WriteAllTextAsync(configPath, """
             {
@@ -587,7 +581,6 @@ await File.WriteAllTextAsync(configPath, """
 
         var interactionService = new TestInteractionService
         {
-            // Confirm the "Perform updates?" prompt so the channel-write code path runs.
             ConfirmCallback = (_, _) => true
         };
 
@@ -603,21 +596,60 @@ await File.WriteAllTextAsync(configPath, """
             NuGetConfigDirBinding = PromptBinding.CreateDefault<string?>(null),
         };
 
-        // BuildAndGenerateSdkAsync calls IAppHostServerProjectFactory.CreateAsync, which the
-        // test factory throws from. The channel save happens BEFORE that, so the on-disk
-        // assertion below is still meaningful.
         await Assert.ThrowsAnyAsync<Exception>(
             () => project.UpdatePackagesAsync(context, CancellationToken.None));
 
         var reloaded = AspireConfigFile.Load(_workspace.WorkspaceRoot.FullName);
         Assert.NotNull(reloaded);
-        // Pre-fix, this would have been "pr-99999" (the identity channel). Post-fix, the
-        // implicit-channel update path leaves the channel untouched.
+        Assert.Equal("1.0.0", reloaded.SdkVersion);
+        Assert.NotNull(reloaded.Packages);
+        Assert.Equal("1.0.0", reloaded.Packages["Aspire.Hosting"]);
         Assert.Null(reloaded.Channel);
     }
 
     [Fact]
-    public async Task UpdatePackagesAsync_ExplicitStableChannel_PersistsStableChannel()
+    public async Task AddPackageAsync_WhenRegenerationFails_DoesNotMutateConfig()
+    {
+        var configPath = Path.Combine(_workspace.WorkspaceRoot.FullName, AspireConfigFile.FileName);
+        await File.WriteAllTextAsync(configPath, """
+            {
+              "sdk": { "version": "1.0.0" },
+              "packages": { "Aspire.Hosting": "1.0.0" }
+            }
+            """);
+
+        var appHostPath = Path.Combine(_workspace.WorkspaceRoot.FullName, "apphost.ts");
+        await File.WriteAllTextAsync(appHostPath, "// test apphost");
+
+        var factory = new TestAppHostServerProjectFactory
+        {
+            CreateAsyncCallback = (appPath, _) =>
+                Task.FromResult<IAppHostServerProject>(new FakeFailingAppHostServerProject(appPath))
+        };
+
+        var project = CreateGuestAppHostProject(appHostServerProjectFactory: factory);
+
+        var result = await project.AddPackageAsync(
+            new AddPackageContext
+            {
+                AppHostFile = new FileInfo(appHostPath),
+                PackageId = "Aspire.Hosting.Redis",
+                PackageVersion = "2.0.0",
+            },
+            CancellationToken.None);
+
+        Assert.False(result);
+
+        var reloaded = AspireConfigFile.Load(_workspace.WorkspaceRoot.FullName);
+        Assert.NotNull(reloaded);
+        Assert.Equal("1.0.0", reloaded.SdkVersion);
+        Assert.NotNull(reloaded.Packages);
+        Assert.Equal("1.0.0", reloaded.Packages["Aspire.Hosting"]);
+        Assert.False(reloaded.Packages.ContainsKey("Aspire.Hosting.Redis"));
+    }
+
+    [Fact]
+    public async Task UpdatePackagesAsync_ExplicitStableChannel_WhenRegenerationFails_DoesNotMutateConfig()
     {
         var configPath = Path.Combine(_workspace.WorkspaceRoot.FullName, AspireConfigFile.FileName);
         await File.WriteAllTextAsync(configPath, """
@@ -666,13 +698,13 @@ await Assert.ThrowsAnyAsync<Exception>(
 
         var reloaded = AspireConfigFile.Load(_workspace.WorkspaceRoot.FullName);
         Assert.NotNull(reloaded);
-        Assert.Equal(PackageChannelNames.Stable, reloaded.Channel);
-        Assert.Equal("2.0.0", reloaded.SdkVersion);
-        Assert.Equal("2.0.0", reloaded.Packages?["Aspire.Hosting"]);
+        Assert.Equal(PackageChannelNames.Staging, reloaded.Channel);
+        Assert.Equal("1.0.0", reloaded.SdkVersion);
+        Assert.Equal("1.0.0", reloaded.Packages?["Aspire.Hosting"]);
     }
 
     [Fact]
-    public async Task UpdatePackagesAsync_ExplicitStagingChannel_PersistsStagingChannelWhenProjectIsUnpinned()
+    public async Task UpdatePackagesAsync_ExplicitStagingChannel_WhenRegenerationFails_DoesNotMutateConfig()
     {
         var configPath = Path.Combine(_workspace.WorkspaceRoot.FullName, AspireConfigFile.FileName);
         await File.WriteAllTextAsync(configPath, """
@@ -720,9 +752,9 @@ await Assert.ThrowsAnyAsync<Exception>(
 
         var reloaded = AspireConfigFile.Load(_workspace.WorkspaceRoot.FullName);
         Assert.NotNull(reloaded);
-        Assert.Equal(PackageChannelNames.Staging, reloaded.Channel);
-        Assert.Equal("2.0.0", reloaded.SdkVersion);
-        Assert.Equal("2.0.0", reloaded.Packages?["Aspire.Hosting"]);
+        Assert.Null(reloaded.Channel);
+        Assert.Equal("1.0.0", reloaded.SdkVersion);
+        Assert.Equal("1.0.0", reloaded.Packages?["Aspire.Hosting"]);
     }
 
     [Fact]
@@ -884,4 +916,5 @@ private GuestAppHostProject CreateGuestAppHostProject(
             fileLoggerProvider: new FileLoggerProvider(logFilePath, new TestStartupErrorWriter()),
             profilingTelemetry: _profilingTelemetry);
     }
+
 }
diff --git a/tests/Aspire.Cli.Tests/TestServices/FakeFailingAppHostServerProject.cs b/tests/Aspire.Cli.Tests/TestServices/FakeFailingAppHostServerProject.cs
index b03c0c8db06..e785a761ba1 100644
--- a/tests/Aspire.Cli.Tests/TestServices/FakeFailingAppHostServerProject.cs
+++ b/tests/Aspire.Cli.Tests/TestServices/FakeFailingAppHostServerProject.cs
@@ -24,7 +24,8 @@ internal sealed class FakeFailingAppHostServerProject(string appDirectoryPath) :
     public Task<AppHostServerPrepareResult> PrepareAsync(
         string sdkVersion,
         IEnumerable<IntegrationReference> integrations,
-        CancellationToken cancellationToken = default) =>
+        CancellationToken cancellationToken = default,
+        string? requestedChannel = null) =>
         Task.FromResult(new AppHostServerPrepareResult(Success: false, Output: null));
 
     public (string SocketPath, Process Process, OutputCollector OutputCollector) Run(
diff --git a/tests/Aspire.Cli.Tests/TestServices/TestAppHostProjectFactory.cs b/tests/Aspire.Cli.Tests/TestServices/TestAppHostProjectFactory.cs
index a73404115dd..254ff338da2 100644
--- a/tests/Aspire.Cli.Tests/TestServices/TestAppHostProjectFactory.cs
+++ b/tests/Aspire.Cli.Tests/TestServices/TestAppHostProjectFactory.cs
@@ -34,6 +34,12 @@ internal sealed class TestAppHostProjectFactory : IAppHostProjectFactory
     /// </summary>
     public Func<FileInfo, CancellationToken, Task<AppHostValidationResult>>? ValidateAppHostAsyncCallback { get; set; }
 
+    public Func<UpdatePackagesContext, CancellationToken, Task<UpdatePackagesResult>>? UpdatePackagesAsyncCallback { get; set; }
+
+    public string LanguageId { get; set; } = "csharp";
+
+    public string DisplayName { get; set; } = "C# (.NET)";
+
     /// <summary>
     /// Optional detection patterns to advertise from the test project.
     /// </summary>
@@ -83,7 +89,7 @@ public IAppHostProject GetProject(FileInfo appHostFile)
 
     public IAppHostProject? GetProjectByLanguageId(string languageId)
     {
-        if (languageId.Equals("csharp", StringComparison.OrdinalIgnoreCase))
+        if (languageId.Equals(LanguageId, StringComparison.OrdinalIgnoreCase))
         {
             return _testProject;
         }
@@ -140,8 +146,8 @@ public TestAppHostProject(TestAppHostProjectFactory factory)
         }
 
         public bool IsUnsupported { get; set; }
-        public string LanguageId => "csharp";
-        public string DisplayName => "C# (.NET)";
+        public string LanguageId => _factory.LanguageId;
+        public string DisplayName => _factory.DisplayName;
         public string? AppHostFileName => "AppHost.csproj";
 
         public bool IsUsingProjectReferences(FileInfo appHostFile)
@@ -220,7 +226,9 @@ public Task<bool> AddPackageAsync(AddPackageContext context, CancellationToken c
             => throw new NotImplementedException();
 
         public Task<UpdatePackagesResult> UpdatePackagesAsync(UpdatePackagesContext context, CancellationToken cancellationToken)
-            => throw new NotImplementedException();
+            => _factory.UpdatePackagesAsyncCallback is not null
+                ? _factory.UpdatePackagesAsyncCallback(context, cancellationToken)
+                : throw new NotImplementedException();
 
         public Task<RunningInstanceResult> FindAndStopRunningInstanceAsync(FileInfo appHostFile, DirectoryInfo homeDirectory, CancellationToken cancellationToken)
             => Task.FromResult(RunningInstanceResult.NoRunningInstance);