diff --git a/src/v/kafka/client/broker.cc b/src/v/kafka/client/broker.cc
index 9b63005a95e3e..b933edcf49534 100644
--- a/src/v/kafka/client/broker.cc
+++ b/src/v/kafka/client/broker.cc
@@ -159,6 +159,7 @@ ss::future<> remote_broker::maybe_authenticate() {
         co_await do_authenticate();
         _authentication_state = auth_state::authenticated;
     } catch (...) {
+        _authentication_state = auth_state::none;
         vlog(
           _logger.warn, "Authentication error - {}", std::current_exception());
         throw;
diff --git a/src/v/kafka/client/test/reconnect.cc b/src/v/kafka/client/test/reconnect.cc
index 268faaeb252d2..8c7d668f4b65b 100644
--- a/src/v/kafka/client/test/reconnect.cc
+++ b/src/v/kafka/client/test/reconnect.cc
@@ -166,3 +166,106 @@ FIXTURE_TEST(password_change_live_client, kafka_client_fixture) {
     info("Stopping kafka client");
     kafka_client.stop().get();
 }
+
+FIXTURE_TEST(auth_failure_does_not_get_stuck_in_progress, kafka_client_fixture) {
+    using namespace std::chrono_literals;
+    ss::sstring username{"admin"};
+    ss::sstring correct_password{"correct_pass"};
+    ss::sstring wrong_password{"wrong_pass"};
+
+    info("Enable SASL and restart");
+    enable_sasl_and_restart(username);
+    auto disable_sasl = ss::defer([this] {
+        info("Disable SASL and restart");
+        disable_sasl_and_restart();
+    });
+    info("Waiting for leadership");
+    wait_for_controller_leadership().get();
+
+    info("Create superuser");
+    ss::sstring user_body = fmt::format(
+      R"({{"username": "{}", "password": "{}","algorithm": "SCRAM-SHA-256"}})",
+      username,
+      correct_password);
+    auto body = iobuf();
+    body.append(user_body.data(), user_body.size());
+    auto admin_client = make_admin_client();
+    auto res = http_request(
+      admin_client,
+      "/v1/security/users",
+      std::move(body),
+      boost::beast::http::verb::post);
+    BOOST_REQUIRE_EQUAL(res.headers.result(), boost::beast::http::status::ok);
+
+    // Connect successfully with correct credentials first so the cluster is
+    // started and brokers are discovered.
+    auto kafka_client = make_client();
+    kafka_client.set_retry_base_backoff(10ms);
+    kafka_client.set_max_retries(size_t(0));
+    kafka_client.set_credentials(
+      kc::sasl_configuration{
+        .mechanism = "SCRAM-SHA-256",
+        .username = username,
+        .password = correct_password,
+      });
+    kafka_client.connect().get();
+
+    // Now swap in wrong credentials and force a reconnect by dispatching a
+    // request. The broker will reconnect and attempt authentication with the
+    // wrong password, leaving _authentication_state in a failed state.
+    // Before the fix, the state was left as in_progress, which caused
+    // needs_authentication() to return false on the next attempt, silently
+    // skipping re-authentication and making all subsequent requests fail.
+    info("Swapping to wrong credentials");
+    kafka_client.set_credentials(
+      kc::sasl_configuration{
+        .mechanism = "SCRAM-SHA-256",
+        .username = username,
+        .password = wrong_password,
+      });
+
+    // Force the broker to reconnect and hit the bad auth path. Allow 1 retry
+    // so transient disconnect/broker_not_available after restart does not make
+    // the test flaky before it reaches the SASL auth path.
+    restart(true);
+    wait_for_controller_leadership().get();
+    kafka_client.set_max_retries(size_t(1));
+    BOOST_REQUIRE_EXCEPTION(
+      kafka_client.dispatch(make_list_topics_req()).get(),
+      kc::broker_error,
+      [](const kc::broker_error& e) {
+          return e.error == kafka::error_code::sasl_authentication_failed;
+      });
+
+    // Restore correct credentials. With the fix, _authentication_state was
+    // reset to none on failure, so the next dispatch re-attempts auth and
+    // succeeds. Without the fix it stays in_progress and the request fails.
+    info("Restoring correct credentials");
+    kafka_client.set_credentials(
+      kc::sasl_configuration{
+        .mechanism = "SCRAM-SHA-256",
+        .username = username,
+        .password = correct_password,
+      });
+    kafka_client.set_max_retries(size_t(3));
+
+    {
+        info("Adding a known topic to verify authenticated request succeeds");
+        auto tp = model::topic_partition(
+          model::topic("t"), model::partition_id(0));
+        auto ntp = make_default_ntp(tp.topic, tp.partition);
+        add_topic(model::topic_namespace_view(ntp)).get();
+
+        info("Verifying client recovers after auth failure");
+        auto result = kafka_client.dispatch(make_list_topics_req()).get();
+        BOOST_REQUIRE_EQUAL(result.data.topics.size(), 1);
+        static_assert(
+          kc::api_version_for(kafka::metadata_request::api_type::key)
+            < kafka::api_version(12),
+          "topic::name is nullable in v12+");
+        BOOST_REQUIRE_EQUAL((*result.data.topics[0].name)(), "t");
+    }
+
+    info("Stopping kafka client");
+    kafka_client.stop().get();
+}