diff --git a/.changeset/fast-pots-sit.md b/.changeset/fast-pots-sit.md
new file mode 100644
index 00000000000..63afe98354f
--- /dev/null
+++ b/.changeset/fast-pots-sit.md
@@ -0,0 +1,6 @@
+---
+'@sap-ux/ui5-proxy-middleware': patch
+'@sap-ux/ui5-config': patch
+---
+
+fix: pathReplace not taken into account or truncated in case of nested router instances
diff --git a/packages/ui5-config/src/types/middlewares.ts b/packages/ui5-config/src/types/middlewares.ts
index 1a3ab849c66..483c702720e 100644
--- a/packages/ui5-config/src/types/middlewares.ts
+++ b/packages/ui5-config/src/types/middlewares.ts
@@ -2,6 +2,7 @@ import type { AuthenticationType } from '@sap-ux/store';
 export interface UI5ProxyConfigTarget {
     path: string | string[];
     url: string;
+    pathReplace?: string;
 }
 
 export interface UI5ProxyConfig {
diff --git a/packages/ui5-proxy-middleware/src/base/utils.ts b/packages/ui5-proxy-middleware/src/base/utils.ts
index 8eb5013ddf8..6270e2064c8 100644
--- a/packages/ui5-proxy-middleware/src/base/utils.ts
+++ b/packages/ui5-proxy-middleware/src/base/utils.ts
@@ -350,6 +350,10 @@ export function directLoadProxy(
 
 /**
  * Create a rewrite based on the provided configuration.
+ * This will either replace the configured path with the provided pathReplace value or
+ * will prepend the UI5 version to the path.
+ * It also ensures that the path from the http-proxy-middleware starts with the
+ * config path in case of nested router instances.
  *
  * @param config proxy configuration
  * @param ui5Ver UI5 version string
@@ -359,7 +363,10 @@ export function getPathRewrite(config: ProxyConfig, ui5Ver: string): Options['pa
     if (config.pathReplace) {
         // Remove trailing slash from pathReplace if present
         const sanitizedPathReplace = config.pathReplace?.replace(/\/$/, '');
-        return (path: string) => path.replace(config.path, sanitizedPathReplace);
+        return (path: string) =>
+            path.startsWith(config.path)
+                ? path.replace(config.path, sanitizedPathReplace)
+                : sanitizedPathReplace + path;
     }
     return (path: string) => (path.startsWith(config.path) ? ui5Ver + path : ui5Ver + config.path + path);
 }
diff --git a/packages/ui5-proxy-middleware/src/ui5/middleware.ts b/packages/ui5-proxy-middleware/src/ui5/middleware.ts
index da184812b68..c6aaff0c306 100644
--- a/packages/ui5-proxy-middleware/src/ui5/middleware.ts
+++ b/packages/ui5-proxy-middleware/src/ui5/middleware.ts
@@ -100,6 +100,7 @@ module.exports = async ({ resources, options }: MiddlewareParameters<UI5ProxyCon
                 path: ui5Path,
                 url: envUI5Url || ui5.url,
                 version: ui5Version,
+                pathReplace: ui5.pathReplace,
                 proxy: config.proxy
             };
 
diff --git a/packages/ui5-proxy-middleware/test/base/utils.test.ts b/packages/ui5-proxy-middleware/test/base/utils.test.ts
index c2c81be681d..d5425ded6c6 100644
--- a/packages/ui5-proxy-middleware/test/base/utils.test.ts
+++ b/packages/ui5-proxy-middleware/test/base/utils.test.ts
@@ -569,6 +569,17 @@ describe('utils', () => {
             expect((rewrite as Function)('/mypath')).toEqual('this/path/should/rewrite/mypath');
         });
 
+        test('custom pathRewrite (simulate missing path because of nested router instances)', () => {
+            const config = {
+                pathReplace: 'this/path/should/rewrite/mypath',
+                path: '/mypath',
+                url: 'https://example.example'
+            };
+            const ui5Ver = '';
+            const rewrite = getPathRewrite(config, ui5Ver);
+            expect((rewrite as Function)('/test.ts')).toEqual('this/path/should/rewrite/mypath/test.ts');
+        });
+
         test('handle pathRewrite with trailing slash', () => {
             const config = {
                 path: '/resources',
diff --git a/packages/ui5-proxy-middleware/test/ui5/middleware.test.ts b/packages/ui5-proxy-middleware/test/ui5/middleware.test.ts
index d92fcaf0bb3..3ee1e796e70 100644
--- a/packages/ui5-proxy-middleware/test/ui5/middleware.test.ts
+++ b/packages/ui5-proxy-middleware/test/ui5/middleware.test.ts
@@ -187,6 +187,23 @@ describe('middleware', () => {
             );
         });
 
+        test('pathReplace', async () => {
+            await getTestServer({
+                ...config,
+                ui5: {
+                    path: '/resources',
+                    url: 'http://ui5.example',
+                    pathReplace: '/new-resources'
+                }
+            });
+            expect(ui5ProxySpy).toHaveBeenCalledWith(
+                expect.objectContaining({ pathReplace: '/new-resources' }),
+                expect.objectContaining({}),
+                undefined,
+                expect.any(ToolsLogger)
+            );
+        });
+
         test('secure', async () => {
             await getTestServer({
                 ...config,
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index 29602276fb1..1a49774cea6 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -11136,7 +11136,7 @@ packages:
     dependencies:
       '@typescript-eslint/typescript-estree': 5.62.0(typescript@5.9.2)
       '@typescript-eslint/utils': 5.62.0(eslint@8.57.0)(typescript@5.9.2)
-      debug: 4.3.7
+      debug: 4.4.1
       eslint: 8.57.0
       tsutils: 3.21.0(typescript@5.9.2)
       typescript: 5.9.2