diff --git a/CHANGELOG.md b/CHANGELOG.md
index 7e3821ce06b..e8d51c4295f 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -13,6 +13,7 @@ Docs: https://docs.openclaw.ai
 ### Fixes
 
 - Agents/Bedrock: stop heartbeat runs from persisting blank user transcript turns and repair existing blank user text messages before replay, preventing AWS Bedrock `ContentBlock` blank-text validation failures. Fixes #72640 and #72622. Thanks @goldzulu.
+- LM Studio: allow interactive onboarding to leave the API key blank for unauthenticated local servers, using local synthetic auth while clearing stale LM Studio auth profiles. Fixes #66937. Thanks @olamedia.
 - Process/Windows: decode command stdout and stderr from raw bytes with console-codepage awareness, while preserving valid UTF-8 output and multibyte characters split across chunks. Fixes #50519. Thanks @iready, @kevinten10, @zhangyongjie1997, @knightplat-blip, @heiqishi666, and @slepybear.
 - Agents/bootstrap: dedupe hook-injected bootstrap context files by workspace-relative path and store normalized resolved paths so duplicate relative and absolute hook paths no longer depend on the process cwd. (#59344; fixes #59319; related #56721, #56725, and #57587) Thanks @koen666.
 - Agents/bootstrap: refresh cached workspace bootstrap snapshots on long-lived main-session turns when `AGENTS.md`, `SOUL.md`, `MEMORY.md`, or `TOOLS.md` change on disk, while preserving unchanged snapshot identity through the workspace file cache. (#64871; related #43901, #26497, #28594, #30896) Thanks @aimqwest and @mikejuyoon.
diff --git a/docs/providers/lmstudio.md b/docs/providers/lmstudio.md
index f59fca93f91..26f1aabb59c 100644
--- a/docs/providers/lmstudio.md
+++ b/docs/providers/lmstudio.md
@@ -30,17 +30,13 @@ lms server start --port 1234
 
 If you are using the app, make sure you have JIT enabled for a smooth experience. Learn more in the [LM Studio JIT and TTL guide](https://lmstudio.ai/docs/developer/core/ttl-and-auto-evict).
 
-3. OpenClaw requires an LM Studio token value. Set `LM_API_TOKEN`:
+3. If LM Studio authentication is enabled, set `LM_API_TOKEN`:
 
 ```bash
 export LM_API_TOKEN="your-lm-studio-api-token"
 ```
 
-If LM Studio authentication is disabled, use any non-empty token value:
-
-```bash
-export LM_API_TOKEN="placeholder-key"
-```
+If LM Studio authentication is disabled, you can leave the API key blank during interactive OpenClaw setup.
 
 For LM Studio auth setup details, see [LM Studio Authentication](https://lmstudio.ai/docs/developer/core/authentication).
 
@@ -73,7 +69,7 @@ openclaw onboard \
   --auth-choice lmstudio
 ```
 
-Or specify base URL or model with API key:
+Or specify the base URL, model, and optional API key:
 
 ```bash
 openclaw onboard \
@@ -88,13 +84,14 @@ openclaw onboard \
 `--custom-model-id` takes the model key as returned by LM Studio (e.g. `qwen/qwen3.5-9b`), without
 the `lmstudio/` provider prefix.
 
-Non-interactive onboarding requires `--lmstudio-api-key` (or `LM_API_TOKEN` in env).
-For unauthenticated LM Studio servers, any non-empty token value works.
+For authenticated LM Studio servers, pass `--lmstudio-api-key` or set `LM_API_TOKEN`.
+For unauthenticated LM Studio servers, omit the key; OpenClaw stores a local non-secret marker.
 
 `--custom-api-key` remains supported for compatibility, but `--lmstudio-api-key` is preferred for LM Studio.
 
-This writes `models.providers.lmstudio`, sets the default model to
-`lmstudio/<custom-model-id>`, and writes the `lmstudio:default` auth profile.
+This writes `models.providers.lmstudio` and sets the default model to
+`lmstudio/<custom-model-id>`. When you provide an API key, setup also writes the
+`lmstudio:default` auth profile.
 
 Interactive setup can prompt for an optional preferred load context length and applies it across the discovered LM Studio models it saves into config.
 
@@ -147,7 +144,7 @@ Same behavior applies to these OpenAI-compatible local backends:
 
 ### LM Studio not detected
 
-Make sure LM Studio is running and that you set `LM_API_TOKEN` (for unauthenticated servers, any non-empty token value works):
+Make sure LM Studio is running. If authentication is enabled, also set `LM_API_TOKEN`:
 
 ```bash
 # Start via desktop app, or headless:
@@ -166,7 +163,7 @@ If setup reports HTTP 401, verify your API key:
 
 - Check that `LM_API_TOKEN` matches the key configured in LM Studio.
 - For LM Studio auth setup details, see [LM Studio Authentication](https://lmstudio.ai/docs/developer/core/authentication).
-- If your server does not require authentication, use any non-empty token value for `LM_API_TOKEN`.
+- If your server does not require authentication, leave the key blank during setup.
 
 ### Just-in-time model loading
 
diff --git a/extensions/lmstudio/index.ts b/extensions/lmstudio/index.ts
index 7e18c015502..2492251b4b3 100644
--- a/extensions/lmstudio/index.ts
+++ b/extensions/lmstudio/index.ts
@@ -69,6 +69,7 @@ export default definePluginEntry({
             const providerSetup = await loadProviderSetup();
             return await providerSetup.promptAndConfigureLmstudioInteractive({
               config: ctx.config,
+              agentDir: ctx.agentDir,
               prompter: ctx.prompter,
               secretInputMode: ctx.secretInputMode,
               allowSecretRefPrompt: ctx.allowSecretRefPrompt,
diff --git a/extensions/lmstudio/src/setup.test.ts b/extensions/lmstudio/src/setup.test.ts
index 8b7c1cda04a..1ee96164725 100644
--- a/extensions/lmstudio/src/setup.test.ts
+++ b/extensions/lmstudio/src/setup.test.ts
@@ -702,6 +702,126 @@ describe("lmstudio setup", () => {
     ]);
   });
 
+  it("interactive setup accepts a blank API key for unauthenticated local LM Studio", async () => {
+    const { prompter, text } = createQueuedWizardPrompterHarness([
+      "http://localhost:1234/api/v1/",
+      "",
+      "",
+    ]);
+
+    const result = await promptAndConfigureLmstudioInteractive({
+      config: buildConfig(),
+      prompter,
+    });
+
+    expect(text).toHaveBeenCalledTimes(3);
+    expect(fetchLmstudioModelsMock).toHaveBeenCalledWith({
+      baseUrl: "http://localhost:1234/v1",
+      apiKey: LMSTUDIO_LOCAL_API_KEY_PLACEHOLDER,
+      timeoutMs: 5000,
+    });
+    expect(removeProviderAuthProfilesWithLockMock).toHaveBeenCalledWith({
+      provider: "lmstudio",
+      agentDir: undefined,
+    });
+    expect(result.profiles).toEqual([]);
+    expect(result.configPatch?.models?.providers?.lmstudio).toMatchObject({
+      baseUrl: "http://localhost:1234/v1",
+      api: "openai-completions",
+      apiKey: LMSTUDIO_LOCAL_API_KEY_PLACEHOLDER,
+      models: [
+        {
+          id: "qwen3-8b-instruct",
+        },
+      ],
+    });
+    expect(result.configPatch?.models?.providers?.lmstudio).not.toHaveProperty("auth");
+  });
+
+  it("interactive setup uses existing Authorization headers when the API key is blank", async () => {
+    const config = {
+      models: {
+        providers: {
+          lmstudio: {
+            baseUrl: "http://localhost:1234/v1",
+            api: "openai-completions",
+            apiKey: "stale-config-key",
+            auth: "api-key",
+            headers: {
+              Authorization: "Bearer proxy-token",
+            },
+            models: [],
+          },
+        },
+      },
+    } as OpenClawConfig;
+    const { prompter } = createQueuedWizardPrompterHarness([
+      "http://localhost:1234/api/v1/",
+      "",
+      "",
+    ]);
+
+    const result = await promptAndConfigureLmstudioInteractive({
+      config,
+      prompter,
+    });
+
+    expect(fetchLmstudioModelsMock).toHaveBeenCalledWith({
+      baseUrl: "http://localhost:1234/v1",
+      apiKey: undefined,
+      headers: {
+        Authorization: "Bearer proxy-token",
+      },
+      timeoutMs: 5000,
+    });
+    expect(removeProviderAuthProfilesWithLockMock).toHaveBeenCalledWith({
+      provider: "lmstudio",
+      agentDir: undefined,
+    });
+    expect(result.profiles).toEqual([]);
+    expect(result.configPatch?.models?.providers?.lmstudio).toMatchObject({
+      baseUrl: "http://localhost:1234/v1",
+      api: "openai-completions",
+      headers: {
+        Authorization: "Bearer proxy-token",
+      },
+      models: [
+        {
+          id: "qwen3-8b-instruct",
+        },
+      ],
+    });
+    expect(result.configPatch?.models?.providers?.lmstudio).not.toHaveProperty("apiKey");
+    expect(result.configPatch?.models?.providers?.lmstudio).not.toHaveProperty("auth");
+  });
+
+  it("interactive setup without a wizard accepts a blank API key for local LM Studio", async () => {
+    const promptText = vi
+      .fn()
+      .mockResolvedValueOnce("http://localhost:1234/api/v1/")
+      .mockResolvedValueOnce("");
+
+    const result = await promptAndConfigureLmstudioInteractive({
+      config: buildConfig(),
+      promptText,
+    });
+
+    expect(fetchLmstudioModelsMock).toHaveBeenCalledWith({
+      baseUrl: "http://localhost:1234/v1",
+      apiKey: LMSTUDIO_LOCAL_API_KEY_PLACEHOLDER,
+      timeoutMs: 5000,
+    });
+    expect(removeProviderAuthProfilesWithLockMock).toHaveBeenCalledWith({
+      provider: "lmstudio",
+      agentDir: undefined,
+    });
+    expect(result.profiles).toEqual([]);
+    expect(result.configPatch?.models?.providers?.lmstudio).toMatchObject({
+      apiKey: LMSTUDIO_LOCAL_API_KEY_PLACEHOLDER,
+    });
+    expect(result.configPatch?.models?.providers?.lmstudio).not.toHaveProperty("auth");
+  });
+
   it("interactive setup overwrites existing config apiKey during re-auth", async () => {
     const config = {
       models: {
diff --git a/extensions/lmstudio/src/setup.ts b/extensions/lmstudio/src/setup.ts
index 7e56310d185..5943444c94a 100644
--- a/extensions/lmstudio/src/setup.ts
+++ b/extensions/lmstudio/src/setup.ts
@@ -2,6 +2,7 @@ import {
   removeProviderAuthProfilesWithLock,
   buildApiKeyCredential,
   ensureApiKeyFromEnvOrPrompt,
+  hasConfiguredSecretInput,
   normalizeOptionalSecretInput,
   type OpenClawConfig,
   type SecretInput,
@@ -363,6 +364,7 @@ async function discoverLmstudioSetupModels(params: {
 /** Interactive LM Studio setup with connectivity and model-availability checks. */
 export async function promptAndConfigureLmstudioInteractive(params: {
   config: OpenClawConfig;
+  agentDir?: string;
   prompter?: WizardPrompter;
   secretInputMode?: SecretInputMode;
   allowSecretRefPrompt?: boolean;
@@ -395,7 +397,7 @@ export async function promptAndConfigureLmstudioInteractive(params: {
             envLabel: LMSTUDIO_DEFAULT_API_KEY_ENV_VAR,
             promptMessage: `${LMSTUDIO_PROVIDER_LABEL} API key`,
             normalize: (value) => value.trim(),
-            validate: (value) => (value.trim() ? undefined : "Required"),
+            validate: () => undefined,
             prompter: params.prompter,
             secretInputMode:
               params.allowSecretRefPrompt === false
@@ -406,30 +408,38 @@ export async function promptAndConfigureLmstudioInteractive(params: {
               credentialMode = mode;
             },
           })
-        : String(
-            await promptText({
+        : (
+            (await promptText({
               message: `${LMSTUDIO_PROVIDER_LABEL} API key`,
-              placeholder: "sk-...",
-              validate: (value) => (value?.trim() ? undefined : "Required"),
-            }),
+              placeholder: "sk-... (leave blank if auth is disabled)",
+              validate: () => undefined,
+            })) ?? ""
           ).trim();
-  const credential = params.prompter
-    ? buildApiKeyCredential(
-        PROVIDER_ID,
-        credentialInput ??
-          (implicitRefMode && autoRefEnvKey ? `\${${LMSTUDIO_DEFAULT_API_KEY_ENV_VAR}}` : apiKey),
-        undefined,
-        credentialMode
-          ? { secretInputMode: credentialMode }
-          : implicitRefMode && autoRefEnvKey
-            ? { secretInputMode: "ref" }
-            : undefined,
-      )
-    : {
-        type: "api_key" as const,
-        provider: PROVIDER_ID,
-        key: apiKey,
-      };
+  const normalizedApiKey = normalizeOptionalSecretInput(apiKey);
+  const credentialSource =
+    credentialInput ??
+    (implicitRefMode && autoRefEnvKey ? `\${${LMSTUDIO_DEFAULT_API_KEY_ENV_VAR}}` : apiKey);
+  const shouldStoreCredential = params.prompter
+    ? credentialMode === "ref" || hasConfiguredSecretInput(credentialSource)
+    : normalizedApiKey !== undefined;
+  const credential = shouldStoreCredential
+    ? params.prompter
+      ? buildApiKeyCredential(
+          PROVIDER_ID,
+          credentialSource,
+          undefined,
+          credentialMode
+            ? { secretInputMode: credentialMode }
+            : implicitRefMode && autoRefEnvKey
+              ? { secretInputMode: "ref" }
+              : undefined,
+        )
+      : {
+          type: "api_key" as const,
+          provider: PROVIDER_ID,
+          key: normalizedApiKey ?? apiKey,
+        }
+    : undefined;
   const existingProvider = params.config.models?.providers?.[PROVIDER_ID];
   // Auth setup updates auth/profile/provider model fields but does not mutate
   // user-provided header overrides. Runtime request assembly is the source of truth for auth.
@@ -439,9 +449,19 @@ export async function promptAndConfigureLmstudioInteractive(params: {
     env: process.env,
     headers: persistedHeaders,
   });
+  const hasAuthorizationHeader = hasLmstudioAuthorizationHeader(resolvedHeaders);
+  const setupDiscoveryApiKey =
+    normalizedApiKey ??
+    (shouldUseLmstudioApiKeyPlaceholder({
+      hasModels: true,
+      resolvedApiKey: undefined,
+      hasAuthorizationHeader,
+    })
+      ? LMSTUDIO_LOCAL_API_KEY_PLACEHOLDER
+      : undefined);
   const setupDiscovery = await discoverLmstudioSetupModels({
     baseUrl,
-    apiKey,
+    apiKey: setupDiscoveryApiKey,
     ...(resolvedHeaders ? { headers: resolvedHeaders } : {}),
     timeoutMs: 5000,
   });
@@ -475,21 +495,29 @@ export async function promptAndConfigureLmstudioInteractive(params: {
   const defaultModel = setupDiscovery.value.defaultModel;
   const persistedApiKey =
     resolvePersistedLmstudioApiKey({
-      currentApiKey: existingProvider?.apiKey,
-      explicitAuth: resolveLmstudioProviderAuthMode(apiKey),
-      fallbackApiKey: LMSTUDIO_DEFAULT_API_KEY_ENV_VAR,
+      currentApiKey: normalizedApiKey ? existingProvider?.apiKey : undefined,
+      explicitAuth: resolveLmstudioProviderAuthMode(normalizedApiKey),
+      fallbackApiKey: normalizedApiKey ? LMSTUDIO_DEFAULT_API_KEY_ENV_VAR : undefined,
       preferFallbackApiKey: true,
       hasModels: discoveredModels.length > 0,
-      hasAuthorizationHeader: hasLmstudioAuthorizationHeader(resolvedHeaders),
-    }) ?? LMSTUDIO_DEFAULT_API_KEY_ENV_VAR;
+      hasAuthorizationHeader,
+    }) ?? (normalizedApiKey ? LMSTUDIO_DEFAULT_API_KEY_ENV_VAR : undefined);
+  if (!credential) {
+    await removeProviderAuthProfilesWithLock({
+      provider: PROVIDER_ID,
+      agentDir: params.agentDir,
+    });
+  }
 
   return {
-    profiles: [
-      {
-        profileId: `${PROVIDER_ID}:default`,
-        credential,
-      },
-    ],
+    profiles: credential
+      ? [
+          {
+            profileId: `${PROVIDER_ID}:default`,
+            credential,
+          },
+        ]
+      : [],
     configPatch: {
       agents: {
         defaults: {