diff --git a/src/hooks/runtime-fallback/session-status-handler.test.ts b/src/hooks/runtime-fallback/session-status-handler.test.ts
new file mode 100644
index 000000000..42316a6ec
--- /dev/null
+++ b/src/hooks/runtime-fallback/session-status-handler.test.ts
@@ -0,0 +1,111 @@
+import { describe, expect, it } from "bun:test"
+import type { HookDeps, RuntimeFallbackPluginInput } from "./types"
+import type { AutoRetryHelpers } from "./auto-retry"
+import { createFallbackState } from "./fallback-state"
+import { createSessionStatusHandler } from "./session-status-handler"
+import { SessionCategoryRegistry } from "../../shared/session-category-registry"
+
+function createContext(): RuntimeFallbackPluginInput {
+  return {
+    client: {
+      session: {
+        abort: async () => ({}),
+        messages: async () => ({ data: [] }),
+        promptAsync: async () => ({}),
+      },
+      tui: {
+        showToast: async () => ({}),
+      },
+    },
+    directory: "/test/dir",
+  }
+}
+
+function createDeps(): HookDeps {
+  return {
+    ctx: createContext(),
+    config: {
+      enabled: true,
+      retry_on_errors: [429, 503, 529],
+      max_fallback_attempts: 4,
+      cooldown_seconds: 60,
+      timeout_seconds: 30,
+      notify_on_fallback: false,
+    },
+    options: undefined,
+    pluginConfig: {
+      categories: {
+        test: {
+          fallback_models: ["openai/gpt-5.4", "google/gemini-2.5-pro"],
+        },
+      },
+    },
+    sessionStates: new Map(),
+    sessionLastAccess: new Map(),
+    sessionRetryInFlight: new Set(),
+    sessionAwaitingFallbackResult: new Set(),
+    sessionFallbackTimeouts: new Map(),
+    sessionStatusRetryKeys: new Map(),
+  }
+}
+
+function createHelpers(abortCalls: string[], retryCalls: Array<{ sessionID: string; model: string; source: string }>): AutoRetryHelpers {
+  return {
+    abortSessionRequest: async (sessionID: string) => {
+      abortCalls.push(sessionID)
+    },
+    clearSessionFallbackTimeout: () => {},
+    scheduleSessionFallbackTimeout: () => {},
+    autoRetryWithFallback: async (sessionID: string, model: string, _resolvedAgent: string | undefined, source: string) => {
+      retryCalls.push({ sessionID, model, source })
+    },
+    resolveAgentForSessionFromContext: async () => undefined,
+    cleanupStaleSessions: () => {},
+  }
+}
+
+describe("createSessionStatusHandler", () => {
+  it("#given a pending fallback model #when a new provider cooldown retry arrives #then the handler overrides the pending fallback and advances the chain", async () => {
+    // given
+    SessionCategoryRegistry.clear()
+    const sessionID = "session-status-pending-fallback"
+    SessionCategoryRegistry.register(sessionID, "test")
+
+    const deps = createDeps()
+    const abortCalls: string[] = []
+    const retryCalls: Array<{ sessionID: string; model: string; source: string }> = []
+    const state = createFallbackState("anthropic/claude-opus-4-6")
+    state.currentModel = "openai/gpt-5.4"
+    state.fallbackIndex = 0
+    state.attemptCount = 1
+    state.pendingFallbackModel = "openai/gpt-5.4"
+    state.failedModels.set("anthropic/claude-opus-4-6", Date.now())
+    deps.sessionStates.set(sessionID, state)
+
+    const handler = createSessionStatusHandler(deps, createHelpers(abortCalls, retryCalls), deps.sessionStatusRetryKeys)
+
+    // when
+    await handler({
+      sessionID,
+      model: "openai/gpt-5.4",
+      status: {
+        type: "retry",
+        attempt: 2,
+        message: "All credentials for model gpt-5.4 are cooling down [retrying in 7m 56s attempt #2]",
+      },
+    })
+
+    // then
+    expect(abortCalls).toEqual([sessionID])
+    expect(retryCalls).toEqual([
+      {
+        sessionID,
+        model: "google/gemini-2.5-pro",
+        source: "session.status",
+      },
+    ])
+    expect(state.currentModel).toBe("google/gemini-2.5-pro")
+    expect(state.pendingFallbackModel).toBe("google/gemini-2.5-pro")
+    SessionCategoryRegistry.clear()
+  })
+})
diff --git a/src/hooks/runtime-fallback/session-status-handler.ts b/src/hooks/runtime-fallback/session-status-handler.ts
index 72aa76d66..2e15d41d5 100644
--- a/src/hooks/runtime-fallback/session-status-handler.ts
+++ b/src/hooks/runtime-fallback/session-status-handler.ts
@@ -26,6 +26,7 @@ export function createSessionStatusHandler(
     const status = props?.status as { type?: string; message?: string; attempt?: number } | undefined
     const agent = props?.agent as string | undefined
     const model = props?.model as string | undefined
+    const timeoutEnabled = deps.config.timeout_seconds > 0
 
     if (!sessionID || status?.type !== "retry") return
 
@@ -40,8 +41,17 @@ export function createSessionStatusHandler(
     sessionStatusRetryKeys.set(sessionID, retryKey)
 
     if (sessionRetryInFlight.has(sessionID)) {
-      log(`[${HOOK_NAME}] session.status retry skipped — retry already in flight`, { sessionID })
-      return
+      if (timeoutEnabled) {
+        log(`[${HOOK_NAME}] Overriding in-flight retry due to provider auto-retry signal`, {
+          sessionID,
+          model,
+        })
+        await helpers.abortSessionRequest(sessionID, "session.status.retry-signal")
+        sessionRetryInFlight.delete(sessionID)
+      } else {
+        log(`[${HOOK_NAME}] session.status retry skipped — retry already in flight`, { sessionID })
+        return
+      }
     }
 
     const resolvedAgent = await helpers.resolveAgentForSessionFromContext(sessionID, agent)
@@ -75,11 +85,19 @@ export function createSessionStatusHandler(
     sessionLastAccess.set(sessionID, Date.now())
 
     if (state.pendingFallbackModel) {
-      log(`[${HOOK_NAME}] session.status retry skipped (pending fallback in progress)`, {
-        sessionID,
-        pendingFallbackModel: state.pendingFallbackModel,
-      })
-      return
+      if (timeoutEnabled) {
+        log(`[${HOOK_NAME}] Clearing pending fallback due to provider auto-retry signal`, {
+          sessionID,
+          pendingFallbackModel: state.pendingFallbackModel,
+        })
+        state.pendingFallbackModel = undefined
+      } else {
+        log(`[${HOOK_NAME}] session.status retry skipped (pending fallback in progress)`, {
+          sessionID,
+          pendingFallbackModel: state.pendingFallbackModel,
+        })
+        return
+      }
     }
 
     log(`[${HOOK_NAME}] Detected provider auto-retry signal in session.status`, {