diff --git a/CHANGELOG.md b/CHANGELOG.md
index 66194f1a8..67ff8f215 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,6 +7,7 @@
 ### Bug Fixes:
 
 - fix(vcl/condition): `--comment` flag in `condition update` now correctly sets the comment instead of overwriting the statement
+- fix(manifest): `env_file` parsing no longer rejects values containing `=` characters (e.g. `KEY=val=ue`).
 
 ### Enhancements:
 
diff --git a/pkg/manifest/file.go b/pkg/manifest/file.go
index d430c152c..c0804f7cc 100644
--- a/pkg/manifest/file.go
+++ b/pkg/manifest/file.go
@@ -264,9 +264,10 @@ func (f *File) ParseEnvFile() error {
 	if err != nil {
 		return fmt.Errorf("failed to open path '%s': %w", path, err)
 	}
+	defer r.Close()
 	scanner := bufio.NewScanner(r)
 	for scanner.Scan() {
-		parts := strings.Split(scanner.Text(), "=")
+		parts := strings.SplitN(scanner.Text(), "=", 2)
 		if len(parts) != 2 {
 			return fmt.Errorf("failed to scan env_file '%s': invalid KEY=VALUE format: %#v", path, parts)
 		}
diff --git a/pkg/manifest/manifest_test.go b/pkg/manifest/manifest_test.go
index 09f775e15..83bdc9cea 100644
--- a/pkg/manifest/manifest_test.go
+++ b/pkg/manifest/manifest_test.go
@@ -308,3 +308,55 @@ func TestManifestPersistsLocalServerSection(t *testing.T) {
 		t.Fatalf("testing section between original and updated fastly.toml do not match (-want +got):\n%s", diff)
 	}
 }
+
+func TestParseEnvFile(t *testing.T) {
+	tests := map[string]struct {
+		content  string
+		wantVars []string
+		wantErr  bool
+	}{
+		"simple key=value": {
+			content:  "FOO=bar\n",
+			wantVars: []string{"FOO=bar"},
+		},
+		"value contains equals sign": {
+			content:  "SECRET=dGVzdA==\n",
+			wantVars: []string{"SECRET=dGVzdA=="},
+		},
+		"multiple entries with equals in values": {
+			content:  "A=1\nB=x=y=z\n",
+			wantVars: []string{"A=1", "B=x=y=z"},
+		},
+		"invalid line without equals": {
+			content: "BADLINE\n",
+			wantErr: true,
+		},
+	}
+
+	for name, tc := range tests {
+		t.Run(name, func(t *testing.T) {
+			tmp := t.TempDir()
+			envPath := filepath.Join(tmp, ".env")
+			if err := os.WriteFile(envPath, []byte(tc.content), 0o600); err != nil {
+				t.Fatal(err)
+			}
+
+			f := &manifest.File{}
+			f.Scripts.EnvFile = envPath
+
+			err := f.ParseEnvFile()
+			if tc.wantErr {
+				if err == nil {
+					t.Fatal("expected error, got nil")
+				}
+				return
+			}
+			if err != nil {
+				t.Fatalf("unexpected error: %v", err)
+			}
+			if diff := cmp.Diff(tc.wantVars, f.Scripts.EnvVars); diff != "" {
+				t.Fatalf("EnvVars mismatch (-want +got):\n%s", diff)
+			}
+		})
+	}
+}