diff --git a/.changeset/curly-tables-stare.md b/.changeset/curly-tables-stare.md
new file mode 100644
index 000000000000..0d40d6eff89a
--- /dev/null
+++ b/.changeset/curly-tables-stare.md
@@ -0,0 +1,5 @@
+---
+"@biomejs/biome": patch
+---
+
+Fixed a bug where the Biome Language Server didn't correctly compute the diagnostics of a monorepo setting, caused by an incorrect handling of the project status.
diff --git a/.changeset/spicy-things-bathe.md b/.changeset/spicy-things-bathe.md
new file mode 100644
index 000000000000..f6ce01a69baa
--- /dev/null
+++ b/.changeset/spicy-things-bathe.md
@@ -0,0 +1,5 @@
+---
+"@biomejs/biome": patch
+---
+
+Fixed [#7371](https://github.com/biomejs/biome/issues/7371) where the Biome Language Server didn't correctly recompute the diagnostics when updating a nested configuration file.
diff --git a/crates/biome_lsp/src/documents.rs b/crates/biome_lsp/src/documents.rs
index af81cb9ec179..b96540fccab3 100644
--- a/crates/biome_lsp/src/documents.rs
+++ b/crates/biome_lsp/src/documents.rs
@@ -4,7 +4,7 @@ use biome_service::projects::ProjectKey;
 /// Represents an open [`textDocument`]. Can be cheaply cloned.
 ///
 /// [`textDocument`]: https://microsoft.github.io/language-server-protocol/specifications/lsp/3.17/specification/#textDocumentItem
-#[derive(Clone)]
+#[derive(Debug, Clone)]
 pub(crate) struct Document {
     pub(crate) project_key: ProjectKey,
     pub(crate) version: i32,
diff --git a/crates/biome_lsp/src/handlers/text_document.rs b/crates/biome_lsp/src/handlers/text_document.rs
index f6e24820f714..06e6ba1fbd3f 100644
--- a/crates/biome_lsp/src/handlers/text_document.rs
+++ b/crates/biome_lsp/src/handlers/text_document.rs
@@ -3,13 +3,13 @@ use std::sync::Arc;
 use crate::diagnostics::LspError;
 use crate::utils::apply_document_changes;
 use crate::{documents::Document, session::Session};
-use biome_configuration::ConfigurationPathHint;
 use biome_service::workspace::{
     ChangeFileParams, CloseFileParams, DocumentFileSource, FeaturesBuilder, FileContent,
     GetFileContentParams, IgnoreKind, OpenFileParams, PathIsIgnoredParams,
 };
 use tower_lsp_server::lsp_types;
-use tracing::{debug, error, field, info};
+use tower_lsp_server::lsp_types::MessageType;
+use tracing::{debug, error, field};
 
 /// Handler for `textDocument/didOpen` LSP notification
 #[tracing::instrument(
@@ -30,33 +30,23 @@ pub(crate) async fn did_open(
     let language_hint = DocumentFileSource::from_language_id(&params.text_document.language_id);
 
     let path = session.file_path(&url)?;
-    let project_key = match session.project_for_path(&path) {
-        Some(project_key) => project_key,
-        None => {
-            info!("No open project for path: {path:?}. Opening new project.");
-            let parent_path = path
-                .parent()
-                .map(|parent| parent.to_path_buf())
-                .unwrap_or_default();
-            let status = session
-                .load_biome_configuration_file(ConfigurationPathHint::FromLsp(parent_path))
-                .await;
-            debug!("Configuration status: {status:?}");
-            session.set_configuration_status(status);
-
-            if status.is_loaded() {
-                match session.project_for_path(&path) {
-                    Some(project_key) => project_key,
-                    None => {
-                        error!("Could not find project for {path}");
-                        return Ok(());
-                    }
-                }
-            } else {
-                error!("Configuration could not be loaded for {path}");
+
+    let status = session.configuration_status();
+
+    let project_key = if status.is_loaded() {
+        match session.project_for_path(&path) {
+            Some(project_key) => project_key,
+            None => {
+                error!("Could not find project for {path}");
                 return Ok(());
             }
         }
+    } else {
+        if status.is_plugin_error() {
+            session.client.show_message(MessageType::WARNING, "The plugin loading has failed. Biome will report only parsing errors until the file is fixed or its usage is disabled.").await;
+        }
+        error!("Configuration could not be loaded for {path}");
+        return Ok(());
     };
 
     let is_ignored = session
diff --git a/crates/biome_lsp/src/server.rs b/crates/biome_lsp/src/server.rs
index 3739d6e985b3..1b71a078dcf4 100644
--- a/crates/biome_lsp/src/server.rs
+++ b/crates/biome_lsp/src/server.rs
@@ -354,7 +354,9 @@ impl LanguageServer for LSPServer {
             if let Some(base_path) = base_path {
                 let possible_biome_json = file_path.strip_prefix(&base_path);
                 if let Ok(watched_file) = possible_biome_json
-                    && (ConfigName::file_names().contains(&&*watched_file.display().to_string())
+                    && (ConfigName::file_names()
+                        .iter()
+                        .any(|file_name| watched_file.ends_with(file_name))
                         || watched_file.ends_with(".editorconfig"))
                 {
                     self.session.load_extension_settings().await;
diff --git a/crates/biome_lsp/src/session.rs b/crates/biome_lsp/src/session.rs
index 686ad75cd634..ad9f3e7d6cc6 100644
--- a/crates/biome_lsp/src/session.rs
+++ b/crates/biome_lsp/src/session.rs
@@ -465,7 +465,7 @@ impl Session {
                 .collect()
         };
 
-        tracing::Span::current().record("diagnostic_count", diagnostics.len());
+        info!("Diagnostics sent to the client {}", diagnostics.len());
 
         self.client
             .publish_diagnostics(url, diagnostics, Some(doc.version))
@@ -780,16 +780,23 @@ impl Session {
                 .or_else(|| fs.working_directory())
                 .unwrap_or_default(),
         };
-        let register_result = self.workspace.open_project(OpenProjectParams {
-            path: path.as_path().into(),
-            open_uninitialized: true,
-        });
-        let OpenProjectResult { project_key } = match register_result {
-            Ok(result) => result,
-            Err(error) => {
-                error!("Failed to register the project folder: {error}");
-                self.client.log_message(MessageType::ERROR, &error).await;
-                return ConfigurationStatus::Error;
+
+        let project_key = match self.project_for_path(&path) {
+            Some(project_key) => project_key,
+            None => {
+                let register_result = self.workspace.open_project(OpenProjectParams {
+                    path: path.as_path().into(),
+                    open_uninitialized: true,
+                });
+                let OpenProjectResult { project_key } = match register_result {
+                    Ok(result) => result,
+                    Err(error) => {
+                        error!("Failed to register the project folder: {error}");
+                        self.client.log_message(MessageType::ERROR, &error).await;
+                        return ConfigurationStatus::Error;
+                    }
+                };
+                project_key
             }
         };
 
diff --git a/crates/biome_service/src/projects.rs b/crates/biome_service/src/projects.rs
index d5c0cd65e41f..7cae209602ce 100644
--- a/crates/biome_service/src/projects.rs
+++ b/crates/biome_service/src/projects.rs
@@ -273,7 +273,7 @@ impl Projects {
             ProjectData {
                 path: data.path.clone(),
                 root_settings: data.root_settings.clone(),
-                nested_settings: nested_settings.clone(),
+                nested_settings,
             }
         });
     }