diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index adeffc40..5e6f5e27 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -2,6 +2,10 @@
 
 ## [Unreleased]
 
+
+### Fixed
+
+- External edits to `settings.json` are now preserved when pi reloads or saves unrelated settings. Previously, editing settings.json directly (e.g., removing a package from `packages` array) would be silently reverted on next pi startup when automatic setters like `setLastChangelogVersion()` triggered a save.
 ### Added
 
 - Added shell-style keybindings: `alt+b`/`alt+f` for word navigation, `ctrl+d` for delete character forward (when editor has text) ([#1043](https://github.com/badlogic/pi-mono/issues/1043) by [@jasonish](https://github.com/jasonish))
diff --git a/packages/coding-agent/src/core/settings-manager.ts b/packages/coding-agent/src/core/settings-manager.ts
index 177c3ecd..d68533a0 100644
--- a/packages/coding-agent/src/core/settings-manager.ts
+++ b/packages/coding-agent/src/core/settings-manager.ts
@@ -123,6 +123,8 @@ export class SettingsManager {
 	private inMemoryProjectSettings: Settings; // For in-memory mode
 	private settings: Settings;
 	private persist: boolean;
+	private modifiedFields = new Set<keyof Settings>(); // Track fields modified during session
+	private modifiedNestedFields = new Map<keyof Settings, Set<string>>(); // Track nested field modifications
 
 	private constructor(
 		settingsPath: string | null,
@@ -231,6 +233,17 @@ export class SettingsManager {
 		this.settings = deepMergeSettings(this.settings, overrides);
 	}
 
+	/** Mark a field as modified during this session */
+	private markModified(field: keyof Settings, nestedKey?: string): void {
+		this.modifiedFields.add(field);
+		if (nestedKey) {
+			if (!this.modifiedNestedFields.has(field)) {
+				this.modifiedNestedFields.set(field, new Set());
+			}
+			this.modifiedNestedFields.get(field)!.add(nestedKey);
+		}
+	}
+
 	private save(): void {
 		if (this.persist && this.settingsPath) {
 			try {
@@ -239,13 +252,33 @@ export class SettingsManager {
 					mkdirSync(dir, { recursive: true });
 				}
 
-				// Re-read current file to preserve any settings added externally while running
+				// Re-read current file to get latest external changes
 				const currentFileSettings = SettingsManager.loadFromFile(this.settingsPath);
-				// Merge: file settings as base, globalSettings (in-memory changes) as overrides
-				const mergedSettings = deepMergeSettings(currentFileSettings, this.globalSettings);
-				this.globalSettings = mergedSettings;
 
-				// Save merged settings (project settings are read-only)
+				// Start with file settings as base - preserves external edits
+				const mergedSettings: Settings = { ...currentFileSettings };
+
+				// Only override with in-memory values for fields that were explicitly modified during this session
+				for (const field of this.modifiedFields) {
+					const value = this.globalSettings[field];
+
+					// Handle nested objects specially - merge at nested level to preserve unmodified nested keys
+					if (this.modifiedNestedFields.has(field) && typeof value === "object" && value !== null) {
+						const nestedModified = this.modifiedNestedFields.get(field)!;
+						const baseNested = (currentFileSettings[field] as Record<string, unknown>) ?? {};
+						const inMemoryNested = value as Record<string, unknown>;
+						const mergedNested = { ...baseNested };
+						for (const nestedKey of nestedModified) {
+							mergedNested[nestedKey] = inMemoryNested[nestedKey];
+						}
+						(mergedSettings as Record<string, unknown>)[field] = mergedNested;
+					} else {
+						// For top-level primitives and arrays, use the modified value directly
+						(mergedSettings as Record<string, unknown>)[field] = value;
+					}
+				}
+
+				this.globalSettings = mergedSettings;
 				writeFileSync(this.settingsPath, JSON.stringify(this.globalSettings, null, 2), "utf-8");
 			} catch (error) {
 				console.error(`Warning: Could not save settings file: ${error}`);
@@ -284,6 +317,7 @@ export class SettingsManager {
 
 	setLastChangelogVersion(version: string): void {
 		this.globalSettings.lastChangelogVersion = version;
+		this.markModified("lastChangelogVersion");
 		this.save();
 	}
 
@@ -297,17 +331,21 @@ export class SettingsManager {
 
 	setDefaultProvider(provider: string): void {
 		this.globalSettings.defaultProvider = provider;
+		this.markModified("defaultProvider");
 		this.save();
 	}
 
 	setDefaultModel(modelId: string): void {
 		this.globalSettings.defaultModel = modelId;
+		this.markModified("defaultModel");
 		this.save();
 	}
 
 	setDefaultModelAndProvider(provider: string, modelId: string): void {
 		this.globalSettings.defaultProvider = provider;
 		this.globalSettings.defaultModel = modelId;
+		this.markModified("defaultProvider");
+		this.markModified("defaultModel");
 		this.save();
 	}
 
@@ -317,6 +355,7 @@ export class SettingsManager {
 
 	setSteeringMode(mode: "all" | "one-at-a-time"): void {
 		this.globalSettings.steeringMode = mode;
+		this.markModified("steeringMode");
 		this.save();
 	}
 
@@ -326,6 +365,7 @@ export class SettingsManager {
 
 	setFollowUpMode(mode: "all" | "one-at-a-time"): void {
 		this.globalSettings.followUpMode = mode;
+		this.markModified("followUpMode");
 		this.save();
 	}
 
@@ -335,6 +375,7 @@ export class SettingsManager {
 
 	setTheme(theme: string): void {
 		this.globalSettings.theme = theme;
+		this.markModified("theme");
 		this.save();
 	}
 
@@ -344,6 +385,7 @@ export class SettingsManager {
 
 	setDefaultThinkingLevel(level: "off" | "minimal" | "low" | "medium" | "high" | "xhigh"): void {
 		this.globalSettings.defaultThinkingLevel = level;
+		this.markModified("defaultThinkingLevel");
 		this.save();
 	}
 
@@ -356,6 +398,7 @@ export class SettingsManager {
 			this.globalSettings.compaction = {};
 		}
 		this.globalSettings.compaction.enabled = enabled;
+		this.markModified("compaction", "enabled");
 		this.save();
 	}
 
@@ -390,6 +433,7 @@ export class SettingsManager {
 			this.globalSettings.retry = {};
 		}
 		this.globalSettings.retry.enabled = enabled;
+		this.markModified("retry", "enabled");
 		this.save();
 	}
 
@@ -407,6 +451,7 @@ export class SettingsManager {
 
 	setHideThinkingBlock(hide: boolean): void {
 		this.globalSettings.hideThinkingBlock = hide;
+		this.markModified("hideThinkingBlock");
 		this.save();
 	}
 
@@ -416,6 +461,7 @@ export class SettingsManager {
 
 	setShellPath(path: string | undefined): void {
 		this.globalSettings.shellPath = path;
+		this.markModified("shellPath");
 		this.save();
 	}
 
@@ -425,6 +471,7 @@ export class SettingsManager {
 
 	setQuietStartup(quiet: boolean): void {
 		this.globalSettings.quietStartup = quiet;
+		this.markModified("quietStartup");
 		this.save();
 	}
 
@@ -434,6 +481,7 @@ export class SettingsManager {
 
 	setShellCommandPrefix(prefix: string | undefined): void {
 		this.globalSettings.shellCommandPrefix = prefix;
+		this.markModified("shellCommandPrefix");
 		this.save();
 	}
 
@@ -443,6 +491,7 @@ export class SettingsManager {
 
 	setCollapseChangelog(collapse: boolean): void {
 		this.globalSettings.collapseChangelog = collapse;
+		this.markModified("collapseChangelog");
 		this.save();
 	}
 
@@ -452,6 +501,7 @@ export class SettingsManager {
 
 	setPackages(packages: PackageSource[]): void {
 		this.globalSettings.packages = packages;
+		this.markModified("packages");
 		this.save();
 	}
 
@@ -468,6 +518,7 @@ export class SettingsManager {
 
 	setExtensionPaths(paths: string[]): void {
 		this.globalSettings.extensions = paths;
+		this.markModified("extensions");
 		this.save();
 	}
 
@@ -484,6 +535,7 @@ export class SettingsManager {
 
 	setSkillPaths(paths: string[]): void {
 		this.globalSettings.skills = paths;
+		this.markModified("skills");
 		this.save();
 	}
 
@@ -500,6 +552,7 @@ export class SettingsManager {
 
 	setPromptTemplatePaths(paths: string[]): void {
 		this.globalSettings.prompts = paths;
+		this.markModified("prompts");
 		this.save();
 	}
 
@@ -516,6 +569,7 @@ export class SettingsManager {
 
 	setThemePaths(paths: string[]): void {
 		this.globalSettings.themes = paths;
+		this.markModified("themes");
 		this.save();
 	}
 
@@ -532,6 +586,7 @@ export class SettingsManager {
 
 	setEnableSkillCommands(enabled: boolean): void {
 		this.globalSettings.enableSkillCommands = enabled;
+		this.markModified("enableSkillCommands");
 		this.save();
 	}
 
@@ -548,6 +603,7 @@ export class SettingsManager {
 			this.globalSettings.terminal = {};
 		}
 		this.globalSettings.terminal.showImages = show;
+		this.markModified("terminal", "showImages");
 		this.save();
 	}
 
@@ -560,6 +616,7 @@ export class SettingsManager {
 			this.globalSettings.images = {};
 		}
 		this.globalSettings.images.autoResize = enabled;
+		this.markModified("images", "autoResize");
 		this.save();
 	}
 
@@ -572,6 +629,7 @@ export class SettingsManager {
 			this.globalSettings.images = {};
 		}
 		this.globalSettings.images.blockImages = blocked;
+		this.markModified("images", "blockImages");
 		this.save();
 	}
 
@@ -581,6 +639,7 @@ export class SettingsManager {
 
 	setEnabledModels(patterns: string[] | undefined): void {
 		this.globalSettings.enabledModels = patterns;
+		this.markModified("enabledModels");
 		this.save();
 	}
 
@@ -590,6 +649,7 @@ export class SettingsManager {
 
 	setDoubleEscapeAction(action: "fork" | "tree"): void {
 		this.globalSettings.doubleEscapeAction = action;
+		this.markModified("doubleEscapeAction");
 		this.save();
 	}
 
@@ -599,6 +659,7 @@ export class SettingsManager {
 
 	setShowHardwareCursor(enabled: boolean): void {
 		this.globalSettings.showHardwareCursor = enabled;
+		this.markModified("showHardwareCursor");
 		this.save();
 	}
 
@@ -608,6 +669,7 @@ export class SettingsManager {
 
 	setEditorPaddingX(padding: number): void {
 		this.globalSettings.editorPaddingX = Math.max(0, Math.min(3, Math.floor(padding)));
+		this.markModified("editorPaddingX");
 		this.save();
 	}
 
diff --git a/packages/coding-agent/test/settings-manager-bug.test.ts b/packages/coding-agent/test/settings-manager-bug.test.ts
new file mode 100644
index 00000000..84938909
--- /dev/null
+++ b/packages/coding-agent/test/settings-manager-bug.test.ts
@@ -0,0 +1,99 @@
+import { existsSync, mkdirSync, readFileSync, rmSync, writeFileSync } from "fs";
+import { join } from "path";
+import { afterEach, beforeEach, describe, expect, it } from "vitest";
+import { SettingsManager } from "../src/core/settings-manager.js";
+
+/**
+ * Tests for the fix to a bug where external file changes to arrays were overwritten.
+ *
+ * The bug scenario was:
+ * 1. Pi starts with settings.json containing packages: ["npm:some-pkg"]
+ * 2. User externally edits file to packages: []
+ * 3. User changes an unrelated setting (e.g., theme) via UI
+ * 4. save() would overwrite packages back to ["npm:some-pkg"] from stale in-memory state
+ *
+ * The fix tracks which fields were explicitly modified during the session, and only
+ * those fields override file values during save().
+ */
+describe("SettingsManager - External Edit Preservation", () => {
+	const testDir = join(process.cwd(), "test-settings-bug-tmp");
+	const agentDir = join(testDir, "agent");
+	const projectDir = join(testDir, "project");
+
+	beforeEach(() => {
+		if (existsSync(testDir)) {
+			rmSync(testDir, { recursive: true });
+		}
+		mkdirSync(agentDir, { recursive: true });
+		mkdirSync(join(projectDir, ".pi"), { recursive: true });
+	});
+
+	afterEach(() => {
+		if (existsSync(testDir)) {
+			rmSync(testDir, { recursive: true });
+		}
+	});
+
+	it("should preserve file changes to packages array when changing unrelated setting", () => {
+		const settingsPath = join(agentDir, "settings.json");
+
+		// Initial state: packages has one item
+		writeFileSync(
+			settingsPath,
+			JSON.stringify({
+				theme: "dark",
+				packages: ["npm:pi-mcp-adapter"],
+			}),
+		);
+
+		// Pi starts up, loads settings into memory
+		const manager = SettingsManager.create(projectDir, agentDir);
+
+		// At this point, globalSettings.packages = ["npm:pi-mcp-adapter"]
+		expect(manager.getPackages()).toEqual(["npm:pi-mcp-adapter"]);
+
+		// User externally edits settings.json to remove the package
+		const currentSettings = JSON.parse(readFileSync(settingsPath, "utf-8"));
+		currentSettings.packages = []; // User wants to remove this!
+		writeFileSync(settingsPath, JSON.stringify(currentSettings, null, 2));
+
+		// Verify file was changed
+		expect(JSON.parse(readFileSync(settingsPath, "utf-8")).packages).toEqual([]);
+
+		// User changes an UNRELATED setting via UI (this triggers save)
+		manager.setTheme("light");
+
+		// With the fix, packages should be preserved as [] (not reverted to startup value)
+		const savedSettings = JSON.parse(readFileSync(settingsPath, "utf-8"));
+
+		expect(savedSettings.packages).toEqual([]);
+		expect(savedSettings.theme).toBe("light");
+	});
+
+	it("should preserve file changes to extensions array when changing unrelated setting", () => {
+		const settingsPath = join(agentDir, "settings.json");
+
+		writeFileSync(
+			settingsPath,
+			JSON.stringify({
+				theme: "dark",
+				extensions: ["/old/extension.ts"],
+			}),
+		);
+
+		const manager = SettingsManager.create(projectDir, agentDir);
+
+		// User externally updates extensions
+		const currentSettings = JSON.parse(readFileSync(settingsPath, "utf-8"));
+		currentSettings.extensions = ["/new/extension.ts"];
+		writeFileSync(settingsPath, JSON.stringify(currentSettings, null, 2));
+
+		// Change unrelated setting
+		manager.setDefaultThinkingLevel("high");
+
+		const savedSettings = JSON.parse(readFileSync(settingsPath, "utf-8"));
+
+		// With the fix, extensions should be preserved (not reverted to startup value)
+		expect(savedSettings.extensions).toEqual(["/new/extension.ts"]);
+	});
+});