diff --git a/homeassistant/components/music_assistant/__init__.py b/homeassistant/components/music_assistant/__init__.py
index dd9e64a92d1..c0d56abba2b 100644
--- a/homeassistant/components/music_assistant/__init__.py
+++ b/homeassistant/components/music_assistant/__init__.py
@@ -27,7 +27,11 @@ from music_assistant_models.player import Player
 from homeassistant.config_entries import ConfigEntry, ConfigEntryState
 from homeassistant.const import CONF_URL, EVENT_HOMEASSISTANT_STOP, Platform
 from homeassistant.core import Event, HomeAssistant
-from homeassistant.exceptions import ConfigEntryAuthFailed, ConfigEntryNotReady
+from homeassistant.exceptions import (
+    ConfigEntryAuthFailed,
+    ConfigEntryError,
+    ConfigEntryNotReady,
+)
 from homeassistant.helpers import config_validation as cv, device_registry as dr
 from homeassistant.helpers.aiohttp_client import async_get_clientsession
 from homeassistant.helpers.issue_registry import (
@@ -101,6 +105,15 @@ async def async_setup_entry(  # noqa: C901
         )
         raise ConfigEntryNotReady(f"Invalid server version: {err}") from err
     except (AuthenticationRequired, AuthenticationFailed, InvalidToken) as err:
+        assert mass.server_info is not None
+        # Users cannot reauthenticate when running as Home Assistant addon,
+        # so raising ConfigEntryAuthFailed in that case would be incorrect.
+        # Instead we should wait until the addon discovery is completed,
+        # as that will set up authentication and reload the entry automatically.
+        if mass.server_info.homeassistant_addon:
+            raise ConfigEntryError(
+                "Authentication failed, addon discovery not completed yet"
+            ) from err
         raise ConfigEntryAuthFailed(
             f"Authentication failed for {mass_url}: {err}"
         ) from err
diff --git a/homeassistant/components/music_assistant/config_flow.py b/homeassistant/components/music_assistant/config_flow.py
index 226a4dda28f..c03ae85fd04 100644
--- a/homeassistant/components/music_assistant/config_flow.py
+++ b/homeassistant/components/music_assistant/config_flow.py
@@ -179,6 +179,7 @@ class MusicAssistantConfigFlow(ConfigFlow, domain=DOMAIN):
                     ConfigEntryState.LOADED,
                     ConfigEntryState.SETUP_ERROR,
                     ConfigEntryState.SETUP_RETRY,
+                    ConfigEntryState.SETUP_IN_PROGRESS,
                 ):
                     self.hass.config_entries.async_schedule_reload(entry.entry_id)
 
diff --git a/tests/components/music_assistant/test_init.py b/tests/components/music_assistant/test_init.py
index 2126aa7cdff..2c7ad8a0a74 100644
--- a/tests/components/music_assistant/test_init.py
+++ b/tests/components/music_assistant/test_init.py
@@ -164,7 +164,6 @@ async def test_authentication_required_triggers_reauth(
     music_assistant_client: MagicMock,
 ) -> None:
     """Test that AuthenticationRequired exception triggers reauth flow."""
-    # Create a config entry
     config_entry = MockConfigEntry(
         domain=DOMAIN,
         title="Music Assistant",
@@ -173,19 +172,44 @@ async def test_authentication_required_triggers_reauth(
     )
     config_entry.add_to_hass(hass)
 
-    # Mock the client to raise AuthenticationRequired during connect
     music_assistant_client.connect.side_effect = AuthenticationRequired(
         "Authentication required"
     )
 
-    # Try to set up the integration
     await hass.config_entries.async_setup(config_entry.entry_id)
     await hass.async_block_till_done()
 
-    # Verify the entry is in SETUP_ERROR state (auth failed)
     assert config_entry.state is ConfigEntryState.SETUP_ERROR
 
-    # Verify a reauth repair issue was created
     issue_reg = ir.async_get(hass)
     issue_id = f"config_entry_reauth_{DOMAIN}_{config_entry.entry_id}"
     assert issue_reg.async_get_issue("homeassistant", issue_id)
+
+
+async def test_authentication_required_addon_no_reauth(
+    hass: HomeAssistant,
+    music_assistant_client: MagicMock,
+) -> None:
+    """Test that AuthenticationRequired exception does not trigger reauth for addon."""
+    config_entry = MockConfigEntry(
+        domain=DOMAIN,
+        title="Music Assistant",
+        data={"url": "http://localhost:8095", "token": "old_token"},
+        unique_id="test_server_id",
+    )
+    config_entry.add_to_hass(hass)
+
+    music_assistant_client.server_info.homeassistant_addon = True
+
+    music_assistant_client.connect.side_effect = AuthenticationRequired(
+        "Authentication required"
+    )
+
+    await hass.config_entries.async_setup(config_entry.entry_id)
+    await hass.async_block_till_done()
+
+    assert config_entry.state is ConfigEntryState.SETUP_ERROR
+
+    issue_reg = ir.async_get(hass)
+    issue_id = f"config_entry_reauth_{DOMAIN}_{config_entry.entry_id}"
+    assert issue_reg.async_get_issue("homeassistant", issue_id) is None