diff --git a/__tests__/hooks/use-llm-configured.test.tsx b/__tests__/hooks/use-llm-configured.test.tsx
index 1489de7a7b..c6c18c4229 100644
--- a/__tests__/hooks/use-llm-configured.test.tsx
+++ b/__tests__/hooks/use-llm-configured.test.tsx
@@ -126,6 +126,47 @@ describe("useLlmConfigured (local, agent-profile-driven)", () => {
     expect(result.current.isConfigured).toBe(true);
   });
 
+  it("is configured for the local seeded `default` agent profile when its ref is unauthenticated (matches the agent_settings launch)", () => {
+    // #16193: "B" EXISTS (so the stale-ref fallback above doesn't fire) but has
+    // no key. `default` launches via `agent_settings` on the active LLM "A".
+    useLlmProfilesMock.mockReturnValue(
+      llmProfiles("A", [
+        { name: "A", api_key_set: true },
+        { name: "B", api_key_set: false },
+      ]),
+    );
+    useActiveAgentProfileMock.mockReturnValue({
+      activeProfile: {
+        agent_kind: "openhands",
+        llm_profile_ref: "B",
+        name: "default",
+      },
+    });
+
+    const { result } = renderHook(() => useLlmConfigured(), { wrapper });
+    expect(result.current.isConfigured).toBe(true);
+  });
+
+  it("is NOT configured for the local seeded `default` profile when the active LLM profile has no key either", () => {
+    // The fallback must still validate: nothing here is usable.
+    useLlmProfilesMock.mockReturnValue(
+      llmProfiles("A", [
+        { name: "A", api_key_set: false },
+        { name: "B", api_key_set: false },
+      ]),
+    );
+    useActiveAgentProfileMock.mockReturnValue({
+      activeProfile: {
+        agent_kind: "openhands",
+        llm_profile_ref: "B",
+        name: "default",
+      },
+    });
+
+    const { result } = renderHook(() => useLlmConfigured(), { wrapper });
+    expect(result.current.isConfigured).toBe(false);
+  });
+
   it("is configured for an ACP agent profile regardless of LLM keys", () => {
     useLlmProfilesMock.mockReturnValue(
       llmProfiles("default", [{ name: "default", api_key_set: false }]),
diff --git a/src/hooks/use-llm-configured.ts b/src/hooks/use-llm-configured.ts
index 128dbfd2c0..8ce0145777 100644
--- a/src/hooks/use-llm-configured.ts
+++ b/src/hooks/use-llm-configured.ts
@@ -6,6 +6,7 @@ import { useActiveBackend } from "#/contexts/active-backend-context";
 import { useActiveAgentProfile } from "#/hooks/use-active-agent-profile";
 import { isSettingsPageHidden } from "#/utils/settings-utils";
 import ProfilesService from "#/api/profiles-service/profiles-service.api";
+import { WELL_KNOWN_DEFAULT_AGENT_PROFILE_NAME } from "#/api/agent-profiles-service/agent-profiles-service.api";
 import {
   CONFIG_CACHE_OPTIONS,
   LLM_PROFILES_QUERY_KEYS,
@@ -69,8 +70,15 @@ export function useLlmConfigured(): LlmConfiguredResult {
   // The LLM that will actually power the next conversation is the profile the
   // active AGENT profile references (`llm_profile_ref`) — conversations launch
   // from the agent profile, not the standalone "active LLM profile".
+  // Except the local seeded `default` profile: `useCreateConversation` launches
+  // it via `agent_settings` on the ACTIVE LLM, not the seed's ref, so gating on
+  // that ref blocks launches that would have succeeded (#16193).
   const referencedLlmProfileName =
-    activeAgentProfile?.agent_kind === "openhands"
+    activeAgentProfile?.agent_kind === "openhands" &&
+    !(
+      isLocal &&
+      activeAgentProfile.name === WELL_KNOWN_DEFAULT_AGENT_PROFILE_NAME
+    )
       ? activeAgentProfile.llm_profile_ref
       : undefined;
   const referencedProfile = referencedLlmProfileName