diff --git a/src/desktop/env-manager.test.ts b/src/desktop/env-manager.test.ts
index abe67d66..a04db740 100644
--- a/src/desktop/env-manager.test.ts
+++ b/src/desktop/env-manager.test.ts
@@ -439,6 +439,23 @@ describe('EnvironmentManager', () => {
         });
     });
 
+    describe('updateEnvironment - fires onDidChangeEnvVars', () => {
+        it('fires on init and config change', async () => {
+            const listener = jest.fn();
+            environmentManager.onDidChangeEnvVars(listener);
+
+            await environmentManager.activate(mockContext);
+            expect(listener).toHaveBeenCalledTimes(1);
+
+            listener.mockClear();
+            configurationProviderMock.getConfigVariableOrDefault.mockReturnValue({
+                MY_VAR: 'new_value',
+            });
+            configurationProviderMock.fireOnChangeConfiguration(CONFIG_ENVIRONMENT_VARIABLES);
+            expect(listener).toHaveBeenCalledTimes(1);
+        });
+    });
+
     describe('updateEnvironment - mixed variables', () => {
         it('handles both PATH and non-PATH variables together', async () => {
             configurationProviderMock = configurationProviderFactory({
diff --git a/src/desktop/env-manager.ts b/src/desktop/env-manager.ts
index 51959d2a..64c635a3 100644
--- a/src/desktop/env-manager.ts
+++ b/src/desktop/env-manager.ts
@@ -30,6 +30,8 @@ const DEFAULT_PATH_VAR = (process.platform === 'win32') ? 'Path' : 'PATH';
 export interface EnvironmentManager {
     activate(context: vscode.ExtensionContext): Promise<void>;
     augmentEnv(env: Environment | undefined): Environment;
+
+    readonly onDidChangeEnvVars: vscode.Event<void>;
 }
 
 export interface Environment {
@@ -175,10 +177,14 @@ class PythonEnvironmentExtensionWrapper {
 }
 
 class EnvironmentManagerImpl implements EnvironmentManager {
+    private lastEnvVars: string | undefined;
 
     private pyEnvWrapper: Optional<PythonEnvironmentExtensionWrapper> = undefined;
     private context: vscode.ExtensionContext | undefined = undefined;
 
+    private readonly envVarsChangeEmitter = new vscode.EventEmitter<void>();
+    public readonly onDidChangeEnvVars = this.envVarsChangeEmitter.event;
+
     constructor(
         private readonly configurationProvider: ConfigurationProvider,
     ) {
@@ -192,6 +198,7 @@ class EnvironmentManagerImpl implements EnvironmentManager {
 
         context.subscriptions.push(
             vscode.extensions.onDidChange(() => this.updateEnvironment(context)),
+            this.envVarsChangeEmitter,
         );
 
         this.configurationProvider.onChangeConfiguration(
@@ -234,6 +241,16 @@ class EnvironmentManagerImpl implements EnvironmentManager {
             });
         }
 
+        const vars = envSettings.vars;
+        const currentEnvVars = JSON.stringify(
+            Object.entries(vars)
+                .filter(([, v]) => v !== undefined)
+                .sort(([a], [b]) => a.localeCompare(b)),
+        );
+        if (currentEnvVars === this.lastEnvVars) {
+            return;
+        }
+
         context.environmentVariableCollection.clear();
         for (const [key, value] of Object.entries(envSettings.vars)) {
             if (value !== undefined) {
@@ -243,8 +260,9 @@ class EnvironmentManagerImpl implements EnvironmentManager {
                     context.environmentVariableCollection.replace(key, value);
                 }
             }
-
         }
+        this.lastEnvVars = currentEnvVars;
+        this.envVarsChangeEmitter.fire();
     }
 }
 
diff --git a/src/desktop/extension.ts b/src/desktop/extension.ts
index 9d1cf288..ea405d01 100644
--- a/src/desktop/extension.ts
+++ b/src/desktop/extension.ts
@@ -146,7 +146,8 @@ export const activate = async (context: ExtensionContext): Promise<CsolutionExte
         eventHub,
         rpcData,
         commandsProvider,
-        environmentManagerApiProvider);
+        environmentManagerApiProvider,
+        envManager);
 
     initUtils(configurationProvider, solutionManager);
 
diff --git a/src/solutions/solution-manager.test.ts b/src/solutions/solution-manager.test.ts
index 20c16fdb..f49bb88e 100644
--- a/src/solutions/solution-manager.test.ts
+++ b/src/solutions/solution-manager.test.ts
@@ -29,6 +29,9 @@ import { TestDataHandler } from '../__test__/test-data';
 import { Board, Device } from '../json-rpc/csolution-rpc-client';
 import { csolutionServiceFactory } from '../json-rpc/csolution-rpc-client.factory';
 import { SolutionRpcData } from './solution-rpc-data';
+import { configurationProviderFactory, MockConfigurationProvider } from '../vscode-api/configuration-provider.factories';
+import { EnvironmentManager } from '../desktop/env-manager';
+import { CONFIG_ENVIRONMENT_VARIABLES } from '../manifest';
 
 
 const convertResultData: ConvertResultData = {
@@ -51,9 +54,11 @@ describe('SolutionManager', () => {
     let loadStateChangeListener: jest.Mock;
     let changeConfigurationEmitter: EventEmitter<ConfigurationChangeEvent>;
     let commandsProvider: MockCommandsProvider;
+    let configurationProviderMock: MockConfigurationProvider;
     let changeSolutionFilesEmitter: EventEmitter<void>;
     let vcpkgActivateEmitter: EventEmitter<VcpkgResults>;
     let environmentManagerApi: Pick<EnvironmentManagerApiV1, 'onDidActivate' | 'getActiveTools'>;
+    let environmentManager: EnvironmentManager;
     let eventHub: SolutionEventHub;
     let convertMock: jest.Mock;
     let loadBuildFilesListener: jest.Mock;
@@ -116,6 +121,9 @@ describe('SolutionManager', () => {
 
         commandsProvider = commandsProviderFactory();
         csolutionService = csolutionServiceFactory();
+        configurationProviderMock = configurationProviderFactory({
+            [CONFIG_ENVIRONMENT_VARIABLES]: {},
+        });
         const device: Device = { id: 'device-id' };
         const board: Board = { id: 'board-id' };
         csolutionService.getDeviceInfo.mockResolvedValue({ success: true, device });
@@ -123,6 +131,7 @@ describe('SolutionManager', () => {
         csolutionService.loadSolution.mockResolvedValue({ success: true });
         csolutionService.getVariables.mockResolvedValue({ success: true, variables: {} });
         rpcData = new SolutionRpcData(csolutionService);
+        environmentManager = new EnvironmentManager(configurationProviderMock);
 
         solutionManager = new SolutionManagerImpl(
             mockActiveSolutionTracker as unknown as ActiveSolutionTracker,
@@ -130,6 +139,7 @@ describe('SolutionManager', () => {
             rpcData,
             commandsProvider,
             extensionApiProviderFactory(environmentManagerApi),
+            environmentManager,
         );
         loadStateChangeListener = jest.fn();
         solutionManager.onDidChangeLoadState(loadStateChangeListener);
@@ -279,4 +289,36 @@ describe('SolutionManager', () => {
             ]),
         );
     });
+
+    it('requests restartRpc when envVars change after solution is activated', async () => {
+        mockActiveSolutionTracker.activeSolution = testSolutionPath;
+        changeActiveSolutionEmitter.fire();
+        await waitTimeout(100);
+
+        await environmentManager.activate({
+            subscriptions: [],
+            environmentVariableCollection: {
+                clear: jest.fn(),
+                prepend: jest.fn(),
+                replace: jest.fn(),
+            } as unknown as vscode.GlobalEnvironmentVariableCollection,
+        } as unknown as ExtensionContext);
+
+        convertMock.mockClear();
+        configurationProviderMock.getConfigVariableOrDefault.mockReturnValue({
+            NEW_VAR: 'new_value',
+        });
+        configurationProviderMock.fireOnChangeConfiguration(CONFIG_ENVIRONMENT_VARIABLES);
+        await waitTimeout(600);
+
+        expect(convertMock).toHaveBeenCalledTimes(1);
+        expect(convertMock).toHaveBeenLastCalledWith(
+            expect.objectContaining({
+                solutionPath: testSolutionPath,
+                updateRte: false,
+                restartRpc: true,
+                lockAbort: false,
+            }),
+        );
+    });
 });
diff --git a/src/solutions/solution-manager.ts b/src/solutions/solution-manager.ts
index 9fe6df74..7e508c6c 100644
--- a/src/solutions/solution-manager.ts
+++ b/src/solutions/solution-manager.ts
@@ -27,6 +27,7 @@ import { EnvironmentManagerApiV1 } from '@arm-software/vscode-environment-manage
 import { ETextFileResult } from '../generic/text-file';
 import { debounce } from 'lodash';
 import { SolutionRpcData } from './solution-rpc-data';
+import { EnvironmentManager } from '../desktop/env-manager';
 
 
 export interface SolutionLoadState {
@@ -94,7 +95,7 @@ export class SolutionManagerImpl implements SolutionManager {
         private readonly rpcData: SolutionRpcData,
         private readonly commandsProvider: CommandsProvider,
         private readonly environmentManagerApiProvider: ExtensionApiProvider<Pick<EnvironmentManagerApiV1, 'onDidActivate' | 'getActiveTools'>>,
-
+        private readonly environmentManager: EnvironmentManager,
     ) { }
 
     public async activate(context: vscode.ExtensionContext): Promise<void> {
@@ -111,6 +112,9 @@ export class SolutionManagerImpl implements SolutionManager {
                     this.debouncedHandleEnvironmentChange();
                 }, undefined, context.subscriptions);
             }),
+            this.environmentManager.onDidChangeEnvVars(() => {
+                this.debouncedHandleEnvironmentChange();
+            }, undefined, context.subscriptions),
             this.loadStateChangeEmitter,
             this.loadBuildFilesEmitter,
             this.updatedCompileCommandsEmitter,