diff --git a/py/services/persistent_model_cache.py b/py/services/persistent_model_cache.py
index 60ff2d64..91ae80d1 100644
--- a/py/services/persistent_model_cache.py
+++ b/py/services/persistent_model_cache.py
@@ -7,7 +7,7 @@ import threading
 from dataclasses import dataclass
 from typing import Dict, List, Optional, Sequence, Tuple
 
-from ..utils.settings_paths import get_settings_dir
+from ..utils.settings_paths import get_project_root, get_settings_dir
 
 logger = logging.getLogger(__name__)
 
@@ -397,7 +397,7 @@ class PersistentModelCache:
             settings_dir = get_settings_dir(create=True)
         except Exception as exc:  # pragma: no cover - defensive guard
             logger.warning("Falling back to project directory for cache: %s", exc)
-            settings_dir = os.path.dirname(os.path.dirname(self._db_path)) if hasattr(self, "_db_path") else os.getcwd()
+            settings_dir = get_project_root()
         safe_name = re.sub(r"[^A-Za-z0-9_.-]", "_", library_name or "default")
         if safe_name.lower() in ("default", ""):
             legacy_path = os.path.join(settings_dir, self._DEFAULT_FILENAME)
diff --git a/py/utils/settings_paths.py b/py/utils/settings_paths.py
index 2ebc4cf4..9285b20a 100644
--- a/py/utils/settings_paths.py
+++ b/py/utils/settings_paths.py
@@ -37,8 +37,13 @@ def get_settings_dir(create: bool = True) -> str:
         The absolute path to the user configuration directory.
     """
 
-    config_dir = user_config_dir(APP_NAME, appauthor=False)
-    if create:
+    legacy_path = get_legacy_settings_path()
+    if _should_use_portable_settings(legacy_path, _LOGGER):
+        config_dir = os.path.dirname(legacy_path)
+    else:
+        config_dir = user_config_dir(APP_NAME, appauthor=False)
+
+    if create and config_dir:
         os.makedirs(config_dir, exist_ok=True)
     return config_dir
 
diff --git a/pytest.ini b/pytest.ini
index 6f82885c..ed58371a 100644
--- a/pytest.ini
+++ b/pytest.ini
@@ -7,5 +7,6 @@ python_functions = test_*
 # Register async marker for coroutine-style tests
 markers =
     asyncio: execute test within asyncio event loop
+    no_settings_dir_isolation: allow tests to use real settings paths
 # Skip problematic directories to avoid import conflicts
 norecursedirs = .git .tox dist build *.egg __pycache__ py
\ No newline at end of file
diff --git a/tests/conftest.py b/tests/conftest.py
index d7c54500..7f5becb5 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -74,9 +74,17 @@ sys.modules['nodes'] = nodes_mock
 
 
 @pytest.fixture(autouse=True)
-def _isolate_settings_dir(tmp_path_factory, monkeypatch):
+def _isolate_settings_dir(tmp_path_factory, monkeypatch, request):
     """Redirect settings.json into a temporary directory for each test."""
 
+    if request.node.get_closest_marker("no_settings_dir_isolation"):
+        from py.services import settings_manager as settings_manager_module
+
+        settings_manager_module.reset_settings_manager()
+        yield
+        settings_manager_module.reset_settings_manager()
+        return
+
     settings_dir = tmp_path_factory.mktemp("settings_dir")
 
     def fake_get_settings_dir(create: bool = True) -> str:
diff --git a/tests/services/test_settings_manager.py b/tests/services/test_settings_manager.py
index c1095e8d..c7dde02f 100644
--- a/tests/services/test_settings_manager.py
+++ b/tests/services/test_settings_manager.py
@@ -11,6 +11,37 @@ from py.services.settings_manager import SettingsManager
 from py.utils import settings_paths
 
 
+@pytest.mark.no_settings_dir_isolation
+def test_portable_settings_use_project_root(tmp_path, monkeypatch):
+    from importlib import reload
+
+    settings_paths_module = reload(settings_paths)
+    monkeypatch.setattr(settings_paths_module, "get_project_root", lambda: str(tmp_path))
+    monkeypatch.setattr(
+        settings_paths_module,
+        "user_config_dir",
+        lambda *_args, **_kwargs: str(tmp_path / "user_config"),
+    )
+
+    portable_settings = {"use_portable_settings": True}
+    (tmp_path / "settings.json").write_text(json.dumps(portable_settings), encoding="utf-8")
+
+    config_dir = settings_paths_module.get_settings_dir(create=True)
+    assert config_dir == str(tmp_path)
+
+    from py.services import persistent_model_cache as persistent_model_cache_module
+
+    cache_module = reload(persistent_model_cache_module)
+    monkeypatch.setattr(cache_module.PersistentModelCache, "_instances", {})
+    monkeypatch.delenv("LORA_MANAGER_CACHE_DB", raising=False)
+
+    cache = cache_module.PersistentModelCache(library_name="portable_lib")
+    expected_cache_path = tmp_path / "model_cache" / "portable_lib.sqlite"
+
+    assert cache.get_database_path() == str(expected_cache_path)
+    assert expected_cache_path.parent.is_dir()
+
+
 @pytest.fixture
 def manager(tmp_path, monkeypatch):
     monkeypatch.setattr(SettingsManager, "_save_settings", lambda self: None)