diff --git a/packages/main/cypress/specs/AvatarGroup.cy.tsx b/packages/main/cypress/specs/AvatarGroup.cy.tsx
index 3ce5dc3ce8fd..6c83ebb3637d 100644
--- a/packages/main/cypress/specs/AvatarGroup.cy.tsx
+++ b/packages/main/cypress/specs/AvatarGroup.cy.tsx
@@ -292,7 +292,8 @@ describe("AvatarGroup Rendering and Events", () => {
 			})
 			.its("targetRef")
 			.then((targetRef) => {
-				expect(targetRef.tagName + "." + targetRef.className).to.equal("DIV.ui5-avatar-group-items");
+				expect(targetRef.tagName).to.equal("DIV");
+				expect(targetRef.className).to.contain("ui5-avatar-group-items");
 			});
 	});
 
diff --git a/packages/main/src/AvatarGroup.ts b/packages/main/src/AvatarGroup.ts
index 17a34406603e..7804a6d60844 100644
--- a/packages/main/src/AvatarGroup.ts
+++ b/packages/main/src/AvatarGroup.ts
@@ -493,6 +493,8 @@ class AvatarGroup extends UI5Element {
 
 		this._slottedItems.forEach((avatar, index) => {
 			const colorIndex = this._getNextBackgroundColor();
+			// In Group mode: avatars are not individually interactive, but visual states are applied at group level
+			// In Individual mode: each avatar is interactive
 			avatar.interactive = !this._isGroup;
 
 			if (avatar.getAttribute("_color-scheme") === AvatarColorScheme.Auto) {
diff --git a/packages/main/src/AvatarGroupTemplate.tsx b/packages/main/src/AvatarGroupTemplate.tsx
index ca8bd06a1ad0..fdb987c73ae7 100644
--- a/packages/main/src/AvatarGroupTemplate.tsx
+++ b/packages/main/src/AvatarGroupTemplate.tsx
@@ -6,7 +6,14 @@ export default function AvatarGroupTemplate(this: AvatarGroup) {
 	return (
 		<div class="ui5-avatar-group-root">
 			<div
-				class="ui5-avatar-group-items"
+				class={{
+					"ui5-avatar-group-items": true,
+					"ui5-avatar-group-items-xs": this.firstAvatarSize === AvatarSize.XS,
+					"ui5-avatar-group-items-s": this.firstAvatarSize === AvatarSize.S,
+					"ui5-avatar-group-items-m": this.firstAvatarSize === AvatarSize.M,
+					"ui5-avatar-group-items-l": this.firstAvatarSize === AvatarSize.L,
+					"ui5-avatar-group-items-xl": this.firstAvatarSize === AvatarSize.XL,
+				}}
 				role={this._role}
 				tabindex={this._groupTabIndex}
 				aria-label={this._ariaLabelText}
diff --git a/packages/main/src/themes/AvatarGroup.css b/packages/main/src/themes/AvatarGroup.css
index 6eb41f9963d6..e69b66346fe2 100644
--- a/packages/main/src/themes/AvatarGroup.css
+++ b/packages/main/src/themes/AvatarGroup.css
@@ -31,6 +31,30 @@
 	cursor: pointer;
 }
 
+/* In Group mode: apply hover/active states to ALL avatars when container is hovered/active */
+:host([type="Group"]) .ui5-avatar-group-items:not(:active):hover ::slotted([ui5-avatar]:not([disabled])) {
+	box-shadow: var(--ui5-avatar-hover-box-shadow-offset);
+}
+
+:host([type="Group"]) .ui5-avatar-group-items:active ::slotted([ui5-avatar]) {
+	background-color: var(--sapButton_Active_Background);
+	border-color: var(--sapButton_Active_BorderColor);
+	color: var(--sapButton_Active_TextColor);
+}
+
+/* Overflow button hover/active states in Group mode */
+:host([type="Group"]) .ui5-avatar-group-items:not(:active):hover .ui5-avatar-group-overflow-btn {
+	box-shadow: var(--ui5-avatar-hover-box-shadow-offset);
+	background-color: var(--sapButton_Lite_Hover_Background);
+}
+
+:host([type="Group"]) .ui5-avatar-group-items:active .ui5-avatar-group-overflow-btn {
+	background-color: var(--sapButton_Active_Background);
+	border-color: var(--sapButton_Active_BorderColor);
+	color: var(--sapButton_Active_TextColor);
+}
+
+/* Prevent individual avatars and buttons from intercepting clicks/focus in Group mode */
 :host([type="Group"]) ::slotted([ui5-button]),
 :host([type="Group"]) ::slotted([ui5-avatar]),
 :host([type="Group"]) .ui5-avatar-group-overflow-btn {
diff --git a/packages/main/src/themes/sap_horizon/AvatarGroup-parameters.css b/packages/main/src/themes/sap_horizon/AvatarGroup-parameters.css
index 54ec1eb04734..6127262db817 100644
--- a/packages/main/src/themes/sap_horizon/AvatarGroup-parameters.css
+++ b/packages/main/src/themes/sap_horizon/AvatarGroup-parameters.css
@@ -1,5 +1,22 @@
 @import "../base/AvatarGroup-parameters.css";
 
-:host {
-	--_ui5_avatar_group_focus_border_radius: 0.375rem;
-}
\ No newline at end of file
+/* Context-aware border-radius - dynamically set based on avatar size (height / 2) */
+.ui5-avatar-group-items-xs {
+	--_ui5_avatar_group_focus_border_radius: 1rem; /* 2rem / 2 */
+}
+
+.ui5-avatar-group-items-s {
+	--_ui5_avatar_group_focus_border_radius: 1.5rem; /* 3rem / 2 */
+}
+
+.ui5-avatar-group-items-m {
+	--_ui5_avatar_group_focus_border_radius: 2rem; /* 4rem / 2 */
+}
+
+.ui5-avatar-group-items-l {
+	--_ui5_avatar_group_focus_border_radius: 2.5rem; /* 5rem / 2 */
+}
+
+.ui5-avatar-group-items-xl {
+	--_ui5_avatar_group_focus_border_radius: 3.5rem; /* 7rem / 2 */
+}
diff --git a/packages/main/test/pages/AvatarGroup.html b/packages/main/test/pages/AvatarGroup.html
index 325b4ca5d52e..6e92ca75046f 100644
--- a/packages/main/test/pages/AvatarGroup.html
+++ b/packages/main/test/pages/AvatarGroup.html
@@ -149,6 +149,50 @@ <h3>Test Fired Events</h3>
 		</div>
 		<br>
 
+		<h3>Group Type - XS size</h3>
+		<div class="avatargroup4auto">
+			<ui5-avatar-group type="Group">
+				<ui5-avatar size="XS" interactive icon="home" initials="XS"></ui5-avatar>
+				<ui5-avatar size="XS" interactive initials="XS"></ui5-avatar>
+				<ui5-avatar size="XS" interactive icon="home"></ui5-avatar>
+				<ui5-avatar size="XS" interactive initials="XS"></ui5-avatar>
+			</ui5-avatar-group>
+		</div>
+		<br>
+
+		<h3>Group Type - S size</h3>
+		<div class="avatargroup4auto">
+			<ui5-avatar-group type="Group">
+				<ui5-avatar size="S" interactive icon="home" initials="S"></ui5-avatar>
+				<ui5-avatar size="S" interactive initials="S"></ui5-avatar>
+				<ui5-avatar size="S" interactive icon="home"></ui5-avatar>
+				<ui5-avatar size="S" interactive initials="S"></ui5-avatar>
+			</ui5-avatar-group>
+		</div>
+		<br>
+
+		<h3>Group Type - M size</h3>
+		<div class="avatargroup4auto">
+			<ui5-avatar-group type="Group">
+				<ui5-avatar size="M" interactive icon="home" initials="M"></ui5-avatar>
+				<ui5-avatar size="M" interactive initials="M"></ui5-avatar>
+				<ui5-avatar size="M" interactive icon="home"></ui5-avatar>
+				<ui5-avatar size="M" interactive initials="M"></ui5-avatar>
+			</ui5-avatar-group>
+		</div>
+		<br>
+
+		<h3>Group Type - L size</h3>
+		<div class="avatargroup4auto">
+			<ui5-avatar-group type="Group">
+				<ui5-avatar size="L" interactive icon="home" initials="L"></ui5-avatar>
+				<ui5-avatar size="L" interactive initials="L"></ui5-avatar>
+				<ui5-avatar size="L" interactive icon="home"></ui5-avatar>
+				<ui5-avatar size="L" interactive initials="L"></ui5-avatar>
+			</ui5-avatar-group>
+		</div>
+		<br>
+
 		<div class="demo-section">
 			<span>TargetRef Tag Name: </span>
 			<input type="text" id="event-target" />