diff --git a/src/PackageUploader.ClientApi.Test/XfusRetryPolicyTests.cs b/src/PackageUploader.ClientApi.Test/XfusRetryPolicyTests.cs
new file mode 100644
index 00000000..f304b926
--- /dev/null
+++ b/src/PackageUploader.ClientApi.Test/XfusRetryPolicyTests.cs
@@ -0,0 +1,125 @@
+// Copyright (c) Microsoft Corporation.
+// Licensed under the MIT License.
+
+using Microsoft.Extensions.DependencyInjection;
+using Microsoft.Extensions.Logging;
+using Microsoft.Extensions.Logging.Abstractions;
+using Polly;
+using Polly.Contrib.WaitAndRetry;
+using Polly.Extensions.Http;
+
+namespace PackageUploader.ClientApi.Test;
+
+/// <summary>
+/// Verifies that the Polly retry policy in XfusExtensions retries
+/// TaskCanceledException thrown by HttpClient.Timeout (non-canceled outer token)
+/// rather than treating it as intentional cancellation.
+/// </summary>
+[TestClass]
+public class XfusRetryPolicyTests
+{
+    private const string TestClientName = "xfus-retry-test";
+
+    /// <summary>
+    /// Simulates the behavior of HttpClient.Timeout: throws TaskCanceledException
+    /// with the inner exception being a TimeoutException, while the caller's
+    /// CancellationToken remains non-canceled.
+    /// </summary>
+    private sealed class TimeoutSimulatingHandler : DelegatingHandler
+    {
+        public int CallCount;
+
+        protected override Task<HttpResponseMessage> SendAsync(
+            HttpRequestMessage request, CancellationToken cancellationToken)
+        {
+            Interlocked.Increment(ref CallCount);
+
+            // HttpClient.Timeout throws TaskCanceledException wrapping TimeoutException.
+            // The key detail: cancellationToken (the caller's token) is NOT canceled.
+            throw new TaskCanceledException(
+                "The request was canceled due to the configured HttpClient.Timeout of 100 seconds elapsing.",
+                new TimeoutException("A task was canceled."));
+        }
+    }
+
+    /// <summary>
+    /// Builds the same Polly retry policy used in XfusExtensions.AddXfusService
+    /// to test it in isolation without requiring IConfiguration or the full DI graph.
+    /// </summary>
+    private static IAsyncPolicy<HttpResponseMessage> BuildXfusRetryPolicy(int retryCount)
+    {
+        var delay = Backoff.DecorrelatedJitterBackoffV2(TimeSpan.FromMilliseconds(1), retryCount);
+        return HttpPolicyExtensions
+            .HandleTransientHttpError()
+            .OrResult(response => (int)response.StatusCode >= 500)
+            .OrInner<TimeoutException>()
+            .OrInner<TaskCanceledException>()
+            .WaitAndRetryAsync(delay, (_, _, _, _) => Task.CompletedTask);
+    }
+
+    private static (IHttpClientFactory Factory, TimeoutSimulatingHandler Handler) BuildTestFactory(int retryCount)
+    {
+        var handler = new TimeoutSimulatingHandler();
+        var services = new ServiceCollection();
+        services.AddLogging(b => b.AddProvider(NullLoggerProvider.Instance));
+
+        services.AddHttpClient(TestClientName)
+            .AddPolicyHandler(BuildXfusRetryPolicy(retryCount))
+            .ConfigurePrimaryHttpMessageHandler(() => handler);
+
+        var sp = services.BuildServiceProvider();
+        return (sp.GetRequiredService<IHttpClientFactory>(), handler);
+    }
+
+    [TestMethod]
+    public async Task PollyRetries_WhenHttpClientTimeoutThrowsTaskCanceledException()
+    {
+        // Arrange
+        const int retryCount = 3;
+        var (factory, handler) = BuildTestFactory(retryCount);
+        var httpClient = factory.CreateClient(TestClientName);
+
+        // Act — send a request with a non-canceled token
+        using var cts = new CancellationTokenSource();
+        try
+        {
+            await httpClient.SendAsync(new HttpRequestMessage(HttpMethod.Get, "http://localhost/test"), cts.Token);
+        }
+        catch (Exception) when (!cts.Token.IsCancellationRequested)
+        {
+            // Expected — the final attempt throws after all retries exhausted.
+            // Polly may rethrow the inner TimeoutException or the outer TaskCanceledException.
+        }
+
+        // Assert — initial attempt + retryCount retries = retryCount + 1 total calls
+        Assert.AreEqual(retryCount + 1, handler.CallCount,
+            $"Expected {retryCount + 1} total attempts (1 initial + {retryCount} retries), " +
+            $"but got {handler.CallCount}. Polly may be treating the timeout as intentional cancellation.");
+    }
+
+    [TestMethod]
+    public async Task PollyDoesNotRetry_WhenCallerCancelsToken()
+    {
+        // Arrange — verify that actual user cancellation is NOT retried
+        var (factory, handler) = BuildTestFactory(retryCount: 3);
+        var httpClient = factory.CreateClient(TestClientName);
+
+        // Act — cancel the token before sending (simulates user Ctrl+C)
+        using var cts = new CancellationTokenSource();
+        cts.Cancel();
+
+        try
+        {
+            await httpClient.SendAsync(new HttpRequestMessage(HttpMethod.Get, "http://localhost/test"), cts.Token);
+        }
+        catch (OperationCanceledException)
+        {
+            // Expected
+        }
+
+        // Assert — should not retry when caller intentionally canceled
+        Assert.IsTrue(handler.CallCount <= 1,
+            $"Expected at most 1 attempt when caller cancels, but got {handler.CallCount}. " +
+            "Polly should not retry intentional cancellation.");
+    }
+}
diff --git a/src/PackageUploader.ClientApi/Client/Xfus/Uploader/XfusApiController.cs b/src/PackageUploader.ClientApi/Client/Xfus/Uploader/XfusApiController.cs
index 9108cff6..bb204e51 100644
--- a/src/PackageUploader.ClientApi/Client/Xfus/Uploader/XfusApiController.cs
+++ b/src/PackageUploader.ClientApi/Client/Xfus/Uploader/XfusApiController.cs
@@ -159,9 +159,9 @@ internal async Task<UploadProgress> InitializeAssetAsync(Guid assetId, FileInfo
             };
 
             using var req = CreateJsonRequest(HttpMethod.Post, $"{assetId}/initialize", deltaUpload, properties, XfusJsonSerializerContext.Default.UploadProperties);
-            using var cts = new CancellationTokenSource(_uploadConfig.HttpTimeoutMs);
 
-            var response = await _httpClient.SendAsync(req, cts.Token).ConfigureAwait(false);
+            // Timeout is enforced by HttpClient.Timeout (HttpUploadTimeoutMs), configured in XfusExtensions.AddXfusService.
+            var response = await _httpClient.SendAsync(req, ct).ConfigureAwait(false);
 
             if (!response.IsSuccessStatusCode)
             {