diff --git a/actions/setup/js/copilot_harness.cjs b/actions/setup/js/copilot_harness.cjs
index 9c131b4ec07..02b58ca5ee1 100644
--- a/actions/setup/js/copilot_harness.cjs
+++ b/actions/setup/js/copilot_harness.cjs
@@ -294,6 +294,15 @@ function computeStartupRetryEligible(eventName) {
   return eventName === "schedule" || eventName === "push";
 }
 
+/**
+ * Returns true when a failed attempt qualifies for the startup no-output retry budget.
+ * @param {{exitCode: number, hasOutput: boolean}} result
+ * @returns {boolean}
+ */
+function isStartupNoOutputRetryCandidate(result) {
+  return !result.hasOutput && result.exitCode === 2;
+}
+
 /**
  * Read AWF config written by the compiler before the agent runs.
  * @returns {any|null}
@@ -1258,7 +1267,11 @@ async function main() {
         // (watchdogFired=true), as well as any other partial_execution failure that occurs
         // after the primary task output was already produced.  Retrying would reproduce the
         // same pattern and exhaust the retry budget without ever posting a final safe-output.
-        if ((failureClass === "partial_execution" || failureClass === "long_run_exit") && safeOutputsPath && hasTerminalSafeOutput(safeOutputsPath)) {
+        // The no_output + watchdogFired case is also handled here: the post-result watchdog is
+        // only armed after hasTerminalSafeOutput is true, so watchdogFired on a no-stdio-output
+        // run means the agent completed its task (wrote safe-output) but produced no console
+        // output before the watchdog terminated the idle process.
+        if ((failureClass === "partial_execution" || failureClass === "long_run_exit" || (failureClass === "no_output" && result.watchdogFired)) && safeOutputsPath && hasTerminalSafeOutput(safeOutputsPath)) {
           const reason = result.watchdogFired ? "post-result watchdog fired after terminal safe-output was emitted" : "partial execution after terminal safe-output was already produced";
           log(`attempt ${attempt + 1}: ${reason} — treating as success (late-activity exit suppressed)`);
           lastExitCode = 0;
@@ -1379,7 +1392,7 @@ async function main() {
         // Scheduled and push-triggered runs: retry once on exit code 2 even when no output was
         // produced. This specifically targets transient Copilot API outages at startup where
         // there is no partial session state to continue from (Turns=0 driver-handoff failure).
-        if (isStartupRetryEligible && result.exitCode === 2 && !result.hasOutput && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt < maxRetries) {
+        if (isStartupRetryEligible && isStartupNoOutputRetryCandidate(result) && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt < maxRetries) {
           scheduledExit2Retries += 1;
           scheduledExit2RetryAttempted = true;
           useContinueOnRetry = false;
@@ -1387,7 +1400,7 @@ async function main() {
           log(`attempt ${attempt + 1}: ${triggerLabel} startup interruption (exit code 2, no output — driver-handoff Turns=0)` + ` — retrying once as fresh run (startupRetry=${scheduledExit2Retries}/${MAX_SCHEDULED_EXIT2_RETRIES})`);
           continue;
         }
-        if (isStartupRetryEligible && result.exitCode === 2 && !result.hasOutput && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt >= maxRetries) {
+        if (isStartupRetryEligible && isStartupNoOutputRetryCandidate(result) && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt >= maxRetries) {
           log(`attempt ${attempt + 1}: startup interruption detected (driver-handoff Turns=0) but retry budget exhausted — no attempts remain`);
         }
 
@@ -1416,7 +1429,7 @@ async function main() {
         break;
       }
 
-      if (isStartupRetryEligible && lastExitCode === 2 && scheduledExit2RetryAttempted && !lastHasOutput) {
+      if (isStartupRetryEligible && scheduledExit2RetryAttempted && isStartupNoOutputRetryCandidate({ exitCode: lastExitCode, hasOutput: lastHasOutput })) {
         const triggerLabel = isScheduledRun ? "scheduled" : "push";
         emitInfrastructureIncomplete(
           `Copilot API interruption (exit code 2) persisted after automatic retry in ${triggerLabel} workflow run. ` + "This is the Turns=0 driver-handoff failure signature. Check the agent-stdio.log for startup diagnostics."
diff --git a/actions/setup/js/copilot_harness.test.cjs b/actions/setup/js/copilot_harness.test.cjs
index 412eea401b6..80c1c4d65a0 100644
--- a/actions/setup/js/copilot_harness.test.cjs
+++ b/actions/setup/js/copilot_harness.test.cjs
@@ -404,8 +404,9 @@ describe("copilot_harness.cjs", () => {
     function shouldRetry(result, attempt, isStartupRetryEligible, scheduledExit2Retries) {
       if (result.exitCode === 0) return false;
 
+      const isStartupNoOutputRetryCandidate = !result.hasOutput && result.exitCode === 2;
       // Scheduled or push startup outage: retry once even when no output was produced.
-      if (isStartupRetryEligible && result.exitCode === 2 && !result.hasOutput && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt < MAX_RETRIES) {
+      if (isStartupRetryEligible && isStartupNoOutputRetryCandidate && scheduledExit2Retries < MAX_SCHEDULED_EXIT2_RETRIES && attempt < MAX_RETRIES) {
         return true;
       }
 
@@ -428,6 +429,11 @@ describe("copilot_harness.cjs", () => {
       expect(shouldRetry(result, 1, isEligible, 1)).toBe(false);
     });
 
+    it("does not retry exit code 1 with no output (watchdog-fired exits are suppressed as late-activity, not retried)", () => {
+      const result = { exitCode: 1, hasOutput: false };
+      expect(shouldRetry(result, 0, true, 0)).toBe(false);
+    });
+
     it("does not retry on exit code 2 with no output for non-eligible triggers", () => {
       const result = { exitCode: 2, hasOutput: false };
       // pull_request and other event types are not startup-retry-eligible
@@ -465,7 +471,8 @@ describe("copilot_harness.cjs", () => {
        * Returns true when the incomplete diagnostic should be emitted.
        */
       function shouldEmitIncomplete({ isStartupRetryEligible, lastExitCode, retryAttempted, lastHasOutput }) {
-        return isStartupRetryEligible && lastExitCode === 2 && retryAttempted && !lastHasOutput;
+        const isStartupNoOutputRetryCandidate = !lastHasOutput && lastExitCode === 2;
+        return isStartupRetryEligible && isStartupNoOutputRetryCandidate && retryAttempted;
       }
 
       it("emits diagnostic when terminal attempt had no output", () => {
@@ -481,6 +488,10 @@ describe("copilot_harness.cjs", () => {
         expect(shouldEmitIncomplete({ isStartupRetryEligible: true, lastExitCode: 2, retryAttempted: false, lastHasOutput: false })).toBe(false);
       });
 
+      it("does not emit diagnostic for exit code 1 (watchdog-fired exits are suppressed as late-activity, not emitted as incomplete)", () => {
+        expect(shouldEmitIncomplete({ isStartupRetryEligible: true, lastExitCode: 1, retryAttempted: true, lastHasOutput: false })).toBe(false);
+      });
+
       it("does not emit diagnostic for non-eligible event", () => {
         expect(shouldEmitIncomplete({ isStartupRetryEligible: false, lastExitCode: 2, retryAttempted: true, lastHasOutput: false })).toBe(false);
       });
@@ -2566,6 +2577,49 @@ process.exit(1);`,
       expect(result.status).toBe(1);
       expect(result.stderr).not.toContain("late-activity exit suppressed");
     });
+
+    it("exits 0 without retrying when watchdog fires after terminal safe-output was produced (no stdio output)", () => {
+      const tempDir = makeHarnessTempDir("copilot-watchdog-no-stdio-suppression-");
+      const safeOutputsPath = path.join(tempDir, "safe-outputs.jsonl");
+      const stubPath = path.join(tempDir, "stub.cjs");
+      const promptPath = path.join(tempDir, "prompt.txt");
+      const callsPath = path.join(tempDir, "calls.jsonl");
+      // Stub writes a terminal safe-output but produces NO stdio output.
+      // The watchdog arms (because hasTerminalSafeOutput is true) and fires after inactivity.
+      // This exercises the no_output + watchdogFired + hasTerminalSafeOutput suppression path.
+      fs.writeFileSync(
+        stubPath,
+        `const fs = require("fs");
+const callsPath = process.env.COPILOT_HARNESS_STUB_CALLS;
+const safeOutputsPath = process.env.GH_AW_SAFE_OUTPUTS;
+fs.appendFileSync(callsPath, JSON.stringify({args: process.argv.slice(2)}) + "\\n");
+fs.appendFileSync(safeOutputsPath, JSON.stringify({type:"add_comment",body:"Report posted"}) + "\\n");
+// No stdout output — hasOutput remains false
+process.on("SIGTERM", () => process.exit(1));
+setInterval(() => {}, 1000);`,
+        "utf8"
+      );
+      fs.writeFileSync(promptPath, "generate the report", "utf8");
+
+      const result = spawnSync(process.execPath, ["copilot_harness.cjs", process.execPath, stubPath, "--prompt-file", promptPath], {
+        cwd: path.dirname(require.resolve("./copilot_harness.cjs")),
+        env: {
+          ...process.env,
+          COPILOT_HARNESS_STUB_CALLS: callsPath,
+          GH_AW_SAFE_OUTPUTS: safeOutputsPath,
+          GH_AW_HARNESS_WATCHDOG_TIMEOUT_MS: "100",
+        },
+        encoding: "utf8",
+        timeout: 15000,
+      });
+      const callCount = fs.readFileSync(callsPath, "utf8").trim().split("\n").filter(Boolean).length;
+      // Only one attempt — no retries when watchdog suppression applies
+      expect(callCount).toBe(1);
+      // Harness exits 0 because the terminal safe-output was already produced
+      expect(result.status).toBe(0);
+      expect(result.stderr).toContain("post-result watchdog fired after terminal safe-output was emitted");
+      expect(result.stderr).toContain("late-activity exit suppressed");
+    });
   });
 
   describe("applyCopilotWireAPI", () => {