diff --git a/changes/12367.fix.md b/changes/12367.fix.md
new file mode 100644
index 00000000000..fc6184ef89b
--- /dev/null
+++ b/changes/12367.fix.md
@@ -0,0 +1 @@
+Honor the `group_id` query parameter of the `GET /folders` REST API so the virtual folder listing can be scoped to a single project, instead of always returning every accessible folder (including model-store and, for admins, all cross-project folders) regardless of the requested scope.
diff --git a/src/ai/backend/manager/repositories/vfolder/repository.py b/src/ai/backend/manager/repositories/vfolder/repository.py
index 20bb6090ac7..1cc76dde1d1 100644
--- a/src/ai/backend/manager/repositories/vfolder/repository.py
+++ b/src/ai/backend/manager/repositories/vfolder/repository.py
@@ -3,6 +3,7 @@
 from dataclasses import dataclass
 from datetime import UTC, datetime
 from typing import Any, cast
+from uuid import UUID
 
 import sqlalchemy as sa
 from sqlalchemy import exc as sa_exc
@@ -415,9 +416,13 @@ async def list_accessible_vfolders(
         domain_name: str,
         allowed_vfolder_types: list[str],
         extra_conditions: sa.sql.elements.ColumnElement[bool] | None = None,
+        project_id: UUID | None = None,
     ) -> VFolderListResult:
         """
         List all VFolders accessible to a user.
+
+        When ``project_id`` is given, project-owned vfolders are restricted to
+        that project; user-owned and invited vfolders are unaffected.
         Returns VFolderListResult with access information.
         """
         async with self._db.begin_readonly_session() as session:
@@ -429,6 +434,9 @@ async def list_accessible_vfolders(
                 domain_name=domain_name,
                 allowed_vfolder_types=allowed_vfolder_types,
                 extra_vf_conds=extra_conditions,
+                extra_vf_group_conds=(
+                    (VFolderRow.group == project_id) if project_id is not None else None
+                ),
             )
 
             vfolder_access_infos = []
diff --git a/src/ai/backend/manager/services/vfolder/services/vfolder.py b/src/ai/backend/manager/services/vfolder/services/vfolder.py
index 4a4d3aa0022..65ff9fb3d69 100644
--- a/src/ai/backend/manager/services/vfolder/services/vfolder.py
+++ b/src/ai/backend/manager/services/vfolder/services/vfolder.py
@@ -8,6 +8,7 @@
     Any,
     cast,
 )
+from uuid import UUID
 
 import aiohttp
 import msgpack
@@ -18,6 +19,7 @@
 from ai.backend.common.bgtask.bgtask import BackgroundTaskManager
 from ai.backend.common.clients.valkey_client.valkey_stat.client import ValkeyStatClient
 from ai.backend.common.contexts.user import current_user
+from ai.backend.common.data.permission.types import ScopeType
 from ai.backend.common.defs import VFOLDER_GROUP_PERMISSION_MODE
 from ai.backend.common.etcd import AsyncEtcd
 from ai.backend.common.exception import UnreachableError
@@ -579,12 +581,22 @@ async def list(self, action: ListVFolderAction) -> ListVFolderActionResult:
             raise ObjectNotFound(object_name="User")
         user_role, user_domain_name = user_info
 
+        # When scoped to a project (i.e. the request carried a `group_id`),
+        # restrict project-owned vfolders to that project. Without this, the
+        # listing returns the full accessible union (every MODEL_STORE project,
+        # and every domain project for admins) regardless of the scope, which
+        # made the REST `group_id` query parameter a no-op.
+        project_id: UUID | None = None
+        if action.scope_type() == ScopeType.PROJECT:
+            project_id = UUID(action.scope_id())
+
         # Use repository to get accessible vfolders
         vfolder_list_result = await self._vfolder_repository.list_accessible_vfolders(
             user_id=action.user_uuid,
             user_role=user_role,
             domain_name=user_domain_name,
             allowed_vfolder_types=list(allowed_vfolder_types),
+            project_id=project_id,
         )
 
         vfolders = [
diff --git a/tests/unit/manager/services/vfolder/test_vfolder_crud_service.py b/tests/unit/manager/services/vfolder/test_vfolder_crud_service.py
index bd34ee7aa2e..96417166927 100644
--- a/tests/unit/manager/services/vfolder/test_vfolder_crud_service.py
+++ b/tests/unit/manager/services/vfolder/test_vfolder_crud_service.py
@@ -587,6 +587,54 @@ async def test_no_vfolders_returns_empty_list(
         assert isinstance(result, ListVFolderActionResult)
         assert result.vfolders == []
 
+    async def test_project_scope_restricts_project_vfolders(
+        self,
+        vfolder_service: VFolderService,
+        mock_vfolder_repository: MagicMock,
+        user_uuid: uuid.UUID,
+        group_uuid: uuid.UUID,
+    ) -> None:
+        mock_vfolder_repository.get_user_info = AsyncMock(return_value=(UserRole.USER, "default"))
+        mock_vfolder_repository.list_accessible_vfolders = AsyncMock(
+            return_value=VFolderListResult(vfolders=[])
+        )
+
+        action = ListVFolderAction(
+            user_uuid=user_uuid,
+            _scope_type=ScopeType.PROJECT,
+            _scope_id=str(group_uuid),
+        )
+
+        await vfolder_service.list(action)
+
+        assert (
+            mock_vfolder_repository.list_accessible_vfolders.call_args.kwargs["project_id"]
+            == group_uuid
+        )
+
+    async def test_user_scope_does_not_restrict_project_vfolders(
+        self,
+        vfolder_service: VFolderService,
+        mock_vfolder_repository: MagicMock,
+        user_uuid: uuid.UUID,
+    ) -> None:
+        mock_vfolder_repository.get_user_info = AsyncMock(return_value=(UserRole.USER, "default"))
+        mock_vfolder_repository.list_accessible_vfolders = AsyncMock(
+            return_value=VFolderListResult(vfolders=[])
+        )
+
+        action = ListVFolderAction(
+            user_uuid=user_uuid,
+            _scope_type=ScopeType.USER,
+            _scope_id=str(user_uuid),
+        )
+
+        await vfolder_service.list(action)
+
+        assert (
+            mock_vfolder_repository.list_accessible_vfolders.call_args.kwargs["project_id"] is None
+        )
+
     async def test_returns_owned_and_shared_vfolders(
         self,
         vfolder_service: VFolderService,