diff --git a/changelog.d/fixes/8950-fix.plan.md b/changelog.d/fixes/8950-fix.plan.md
new file mode 100644
index 0000000000..a2214d6e47
--- /dev/null
+++ b/changelog.d/fixes/8950-fix.plan.md
@@ -0,0 +1 @@
+- fix(auth): setting first dashboard login password no longer fails with HTTP 400 PASSWORD_REQUIRED (#8950)
\ No newline at end of file
diff --git a/src/app/api/settings/route.ts b/src/app/api/settings/route.ts
index 29427f6943..a5e6627641 100644
--- a/src/app/api/settings/route.ts
+++ b/src/app/api/settings/route.ts
@@ -319,7 +319,12 @@ export async function PATCH(request: Request) {
       // honoured before T-011 — when no password is configured yet AND login
       // is currently disabled, allow the first write to set policy (incl.
       // the password itself). Once a hash exists the gate always fires.
-      const isColdBoot = !storedPasswordHash && passwordState.settings.requireLogin === false;
+      // #8950: also treat the request as cold boot when newPassword is present
+      // without a stored hash, so the Security tab's two-step flow (enable
+      // requireLogin first, then set password) does not deadlock.
+      const isColdBoot =
+        !storedPasswordHash &&
+        (passwordState.settings.requireLogin === false || Boolean(body.newPassword));
       if (!isColdBoot) {
         if (!body.currentPassword) {
           emitSettingsFailureAudit(request, actor, "PASSWORD_REQUIRED", attemptedKeys);
diff --git a/tests/unit/settings/probe-8950-set-password.test.ts b/tests/unit/settings/probe-8950-set-password.test.ts
new file mode 100644
index 0000000000..df51694ebf
--- /dev/null
+++ b/tests/unit/settings/probe-8950-set-password.test.ts
@@ -0,0 +1,86 @@
+/**
+ * REPRO #8950 — Setting the first dashboard login password fails with HTTP 400
+ * PASSWORD_REQUIRED, deadlocking every fresh install.
+ *
+ * Root cause: isColdBoot only fires while requireLogin===false, but the
+ * Security tab forces requireLogin ON before the password form is reachable,
+ * so the first newPassword write always demands a currentPassword that cannot
+ * exist yet.
+ *
+ * Fix: add `|| Boolean(body.newPassword)` to the cold-boot condition so that
+ * setting the first password is always treated as cold boot, regardless of
+ * the current requireLogin state.
+ *
+ * Regression guard: once a password hash exists, the gate fires as before
+ * (currentPassword required for security-impacting changes).
+ */
+import test from "node:test";
+import assert from "node:assert/strict";
+import { setupSettingsFixture, mockSettings } from "../_mocks/settings.ts";
+import { makeManagementSessionRequest } from "../../helpers/managementSession.ts";
+
+const fixture = setupSettingsFixture("probe-8950");
+
+process.env.OMNIROUTE_DISABLE_REDIS_AUTH_CACHE = "1";
+
+const core = await import("../../../src/lib/db/core.ts");
+const settingsDb = await import("../../../src/lib/db/settings.ts");
+const runtime = await import("../../../src/lib/config/runtimeSettings.ts");
+const settingsRoute = await import("../../../src/app/api/settings/route.ts");
+const managementPassword = await import("../../../src/lib/auth/managementPassword.ts");
+
+test.beforeEach(async () => {
+  await fixture.resetStorage();
+  runtime.resetRuntimeSettingsStateForTests();
+});
+
+test.after(() => {
+  core.resetDbInstance();
+  fixture.cleanup();
+});
+
+test("REPRO #8950: setting first password after requireLogin enabled should succeed", async () => {
+  // Simulate fresh install: no password hash, requireLogin is false.
+  await mockSettings({ setupComplete: true, requireLogin: false });
+
+  // Step 1: Enable requireLogin (what the Security tab does when you open it).
+  const step1 = await settingsRoute.PATCH(
+    await makeManagementSessionRequest("http://localhost/api/settings", {
+      method: "PATCH",
+      body: { requireLogin: true },
+    })
+  );
+  assert.equal(
+    step1.status,
+    200,
+    `Step 1: enabling requireLogin should succeed, got ${step1.status}`
+  );
+
+  // Step 2: Set the first password (no currentPassword because none exists yet).
+  const step2 = await settingsRoute.PATCH(
+    await makeManagementSessionRequest("http://localhost/api/settings", {
+      method: "PATCH",
+      body: { newPassword: "my-first-password" },
+    })
+  );
+
+  // REPRO: this fails with 400 PASSWORD_REQUIRED because isColdBoot only
+  // checks requireLogin===false, but the DB now has requireLogin=true.
+  assert.equal(
+    step2.status,
+    200,
+    `Step 2: first password write should succeed without currentPassword, got ${step2.status}`
+  );
+  const step2Body = (await step2.json()) as Record<string, unknown>;
+  assert.equal(
+    step2Body.error,
+    undefined,
+    `Step 2 response should not have an error: ${JSON.stringify(step2Body)}`
+  );
+
+  // Verify the password was actually stored.
+  const configured = managementPassword.hasManagementPasswordConfigured(
+    (await settingsDb.getSettings()) as Record<string, unknown>
+  );
+  assert.equal(configured, true, "management password should be configured after first write");
+});