diff --git a/python/packages/core/agent_framework/_tools.py b/python/packages/core/agent_framework/_tools.py
index 303699572c..0ff2ac0082 100644
--- a/python/packages/core/agent_framework/_tools.py
+++ b/python/packages/core/agent_framework/_tools.py
@@ -1686,7 +1686,7 @@ def _update_conversation_id(
     if conversation_id is None:
         return
     if "chat_options" in kwargs:
-        kwargs["chat_options"].conversation_id = conversation_id
+        kwargs["chat_options"]["conversation_id"] = conversation_id
     else:
         kwargs["conversation_id"] = conversation_id
 
diff --git a/python/packages/core/tests/core/test_function_invocation_logic.py b/python/packages/core/tests/core/test_function_invocation_logic.py
index 319d35f152..7f0eda62fc 100644
--- a/python/packages/core/tests/core/test_function_invocation_logic.py
+++ b/python/packages/core/tests/core/test_function_invocation_logic.py
@@ -3449,3 +3449,66 @@ def search_func(query: str) -> str:
     reasoning_contents = [c for msg in response.messages for c in msg.contents if c.type == "text_reasoning"]
     assert len(reasoning_contents) >= 1
     assert reasoning_contents[0].id == "rs_test123"
+
+
+# region _update_conversation_id unit tests
+
+
+class TestUpdateConversationId:
+    """Tests for _update_conversation_id handling dict chat_options."""
+
+    def test_chat_options_as_dict(self):
+        """When chat_options is a plain dict, conversation_id should be set via key access."""
+        from agent_framework._tools import _update_conversation_id
+
+        kwargs: dict[str, Any] = {"chat_options": {}}
+        _update_conversation_id(kwargs, "conv_1")
+        assert kwargs["chat_options"]["conversation_id"] == "conv_1"
+
+    def test_chat_options_as_typed_dict(self):
+        """When chat_options is a ChatOptions TypedDict, conversation_id should be set via key access."""
+        from agent_framework import ChatOptions
+        from agent_framework._tools import _update_conversation_id
+
+        opts: ChatOptions = {"temperature": 0.5}
+        kwargs: dict[str, Any] = {"chat_options": opts}
+        _update_conversation_id(kwargs, "conv_2")
+        assert kwargs["chat_options"]["conversation_id"] == "conv_2"
+
+    def test_no_chat_options_falls_back_to_kwargs(self):
+        """When chat_options is absent, conversation_id should be set directly on kwargs."""
+        from agent_framework._tools import _update_conversation_id
+
+        kwargs: dict[str, Any] = {}
+        _update_conversation_id(kwargs, "conv_4")
+        assert kwargs["conversation_id"] == "conv_4"
+
+    def test_none_conversation_id_is_noop(self):
+        """When conversation_id is None, kwargs should not be modified."""
+        from agent_framework._tools import _update_conversation_id
+
+        kwargs: dict[str, Any] = {"chat_options": {}}
+        _update_conversation_id(kwargs, None)
+        assert "conversation_id" not in kwargs["chat_options"]
+        assert "conversation_id" not in kwargs
+
+    def test_options_dict_also_updated(self):
+        """The optional options dict should also receive conversation_id."""
+        from agent_framework._tools import _update_conversation_id
+
+        kwargs: dict[str, Any] = {"chat_options": {}}
+        options: dict[str, Any] = {}
+        _update_conversation_id(kwargs, "conv_5", options)
+        assert kwargs["chat_options"]["conversation_id"] == "conv_5"
+        assert options["conversation_id"] == "conv_5"
+
+    def test_dict_overwrites_existing_conversation_id(self):
+        """When a dict already has a conversation_id, it should be overwritten."""
+        from agent_framework._tools import _update_conversation_id
+
+        kwargs: dict[str, Any] = {"chat_options": {"conversation_id": "old_id"}}
+        _update_conversation_id(kwargs, "new_id")
+        assert kwargs["chat_options"]["conversation_id"] == "new_id"
+
+
+# endregion