diff --git a/src/server/authz/policies/clientApi.ts b/src/server/authz/policies/clientApi.ts
index e291205e3b..1f2363d36c 100644
--- a/src/server/authz/policies/clientApi.ts
+++ b/src/server/authz/policies/clientApi.ts
@@ -9,12 +9,19 @@ function extractBearer(request: Request): string | null {
   const xApiKey = request.headers.get("x-api-key") ?? request.headers.get("X-Api-Key");
   if (raw) {
     const trimmed = raw.trim();
-    if (!trimmed.toLowerCase().startsWith("bearer ")) return null;
-    return trimmed.slice(7).trim() || null;
+    if (trimmed.toLowerCase().startsWith("bearer ")) {
+      const token = trimmed.slice(7).trim();
+      if (token) return token;
+    }
+    // A non-"Bearer <token>" Authorization header (an empty "Bearer ", or a
+    // client's own non-OmniRoute token — VS Code Copilot sends one even when the
+    // OmniRoute key lives in the URL path of a /vscode tokenized endpoint) must
+    // NOT short-circuit auth. Fall through to x-api-key and the path-scoped URL
+    // token below instead of rejecting the request with "Authentication required".
   }
 
   if (xApiKey) {
-    return xApiKey?.trim() || null;
+    return xApiKey.trim() || null;
   }
 
   return extractApiKey(request);
diff --git a/tests/unit/authz/client-api-policy-fallback.test.ts b/tests/unit/authz/client-api-policy-fallback.test.ts
index 9971bf9f33..ddb7e34935 100644
--- a/tests/unit/authz/client-api-policy-fallback.test.ts
+++ b/tests/unit/authz/client-api-policy-fallback.test.ts
@@ -218,3 +218,53 @@ test("#2257 — no bearer + REQUIRE_API_KEY=false → anonymous (unchanged, no f
     console.warn = originalWarn;
   }
 });
+
+// ─── #3504 — non-usable Authorization must NOT short-circuit the URL path token ─
+// VS Code Copilot sends its own (empty / non-OmniRoute) Authorization header even
+// when the OmniRoute key lives in the URL path of a /vscode tokenized endpoint.
+// A non-"Bearer <token>" Authorization must fall through to the URL token instead
+// of returning null and 401'ing under REQUIRE_API_KEY=true.
+
+// validateApiKey is the real (no-DB → always-false) implementation here, so we
+// distinguish "URL token was extracted" from "no token found" by the rejection
+// MESSAGE: an extracted-but-unknown token → "Invalid API key"; nothing extracted
+// → "Authentication required". On the pre-fix code a non-Bearer Authorization
+// returned null, so these would all 401 with "Authentication required".
+
+test("#3504 — empty 'Bearer ' Authorization falls through to the URL path token", async () => {
+  process.env.REQUIRE_API_KEY = "true";
+  const policy = await loadPolicy();
+  const headers = new Headers({ authorization: "Bearer " });
+  const out = await policy.evaluate(
+    ctx(headers, "/api/v1/vscode/sk-url-token/chat/completions")
+  );
+  assert.equal(out.allow, false);
+  if (!out.allow) {
+    assert.equal(out.status, 401);
+    assert.equal(
+      out.message,
+      "Invalid API key",
+      "URL token must be extracted (→ 'Invalid API key'), not skipped (→ 'Authentication required')"
+    );
+  }
+});
+
+test("#3504 — a non-Bearer scheme (Basic) also falls through to the URL token", async () => {
+  process.env.REQUIRE_API_KEY = "true";
+  const policy = await loadPolicy();
+  const headers = new Headers({ authorization: "Basic Zm9vOmJhcg==" });
+  const out = await policy.evaluate(
+    ctx(headers, "/api/v1/vscode/sk-url-token/chat/completions")
+  );
+  assert.equal(out.allow, false);
+  if (!out.allow) assert.equal(out.message, "Invalid API key");
+});
+
+test("#3504 — non-Bearer Authorization with NO URL token still rejects as unauthenticated", async () => {
+  process.env.REQUIRE_API_KEY = "true";
+  const policy = await loadPolicy();
+  const headers = new Headers({ authorization: "Bearer " });
+  const out = await policy.evaluate(ctx(headers, "/api/v1/chat/completions"));
+  assert.equal(out.allow, false);
+  if (!out.allow) assert.equal(out.message, "Authentication required");
+});