diff --git a/packages/coding-agent/CHANGELOG.md b/packages/coding-agent/CHANGELOG.md
index 788bc277..bf85b765 100644
--- a/packages/coding-agent/CHANGELOG.md
+++ b/packages/coding-agent/CHANGELOG.md
@@ -27,6 +27,7 @@
 - Fixed tree selector losing focus state when navigating entries ([#1142](https://github.com/badlogic/pi-mono/pull/1142) by [@Perlence](https://github.com/Perlence))
 - Fixed `cacheRetention` option not being passed through in `buildBaseOptions` ([#1154](https://github.com/badlogic/pi-mono/issues/1154))
 - Fixed OAuth login/refresh not using HTTP proxy settings (`HTTP_PROXY`, `HTTPS_PROXY` env vars) ([#1132](https://github.com/badlogic/pi-mono/issues/1132))
+- Fixed `pi update <source>` installing packages locally when the source is only registered globally ([#1163](https://github.com/badlogic/pi-mono/pull/1163) by [@aliou](https://github.com/aliou))
 
 ## [0.50.9] - 2026-02-01
 
diff --git a/packages/coding-agent/src/core/package-manager.ts b/packages/coding-agent/src/core/package-manager.ts
index 513677a8..2047d027 100644
--- a/packages/coding-agent/src/core/package-manager.ts
+++ b/packages/coding-agent/src/core/package-manager.ts
@@ -742,20 +742,18 @@ export class DefaultPackageManager implements PackageManager {
 	}
 
 	async update(source?: string): Promise<void> {
-		if (source) {
-			await this.updateSourceForScope(source, "user");
-			await this.updateSourceForScope(source, "project");
-			return;
-		}
-
 		const globalSettings = this.settingsManager.getGlobalSettings();
 		const projectSettings = this.settingsManager.getProjectSettings();
+		const identity = source ? this.getPackageIdentity(source) : undefined;
+
 		for (const pkg of globalSettings.packages ?? []) {
 			const sourceStr = typeof pkg === "string" ? pkg : pkg.source;
+			if (identity && this.getPackageIdentity(sourceStr) !== identity) continue;
 			await this.updateSourceForScope(sourceStr, "user");
 		}
 		for (const pkg of projectSettings.packages ?? []) {
 			const sourceStr = typeof pkg === "string" ? pkg : pkg.source;
+			if (identity && this.getPackageIdentity(sourceStr) !== identity) continue;
 			await this.updateSourceForScope(sourceStr, "project");
 		}
 	}