diff --git a/src/install/PackageManager/runTasks.zig b/src/install/PackageManager/runTasks.zig
index 051d9411375e..0e5438435cd4 100644
--- a/src/install/PackageManager/runTasks.zig
+++ b/src/install/PackageManager/runTasks.zig
@@ -394,6 +394,7 @@ pub fn runTasks(
                                 extract.resolution.fmt(manager.lockfile.buffers.string_bytes.items, .auto),
                             },
                         ) catch |e| bun.handleOom(e);
+                        manager.any_failed_to_install = true;
                     } else {
                         manager.log.addWarningFmt(
                             null,
@@ -458,6 +459,7 @@ pub fn runTasks(
                                 response.status_code,
                             },
                         ) catch |err| bun.handleOom(err);
+                        manager.any_failed_to_install = true;
                     } else {
                         manager.log.addWarningFmt(
                             null,
diff --git a/test/regression/issue/02766.test.ts b/test/regression/issue/02766.test.ts
new file mode 100644
index 000000000000..d072fe4a3817
--- /dev/null
+++ b/test/regression/issue/02766.test.ts
@@ -0,0 +1,86 @@
+import type { Server } from "bun";
+import { afterEach, beforeEach, describe, expect, test } from "bun:test";
+import { bunEnv, bunExe, tempDir } from "harness";
+
+/**
+ * Test for GitHub issue #2766
+ * When a tarball download fails (HTTP error or connection error), bun install
+ * should exit with a non-zero exit code.
+ */
+describe("issue #2766 - tarball download failures should cause non-zero exit code", () => {
+  let mockRegistry: Server;
+  let mockRegistryUrl: string;
+
+  beforeEach(async () => {
+    mockRegistry = Bun.serve({
+      port: 0,
+      async fetch(req) {
+        const url = new URL(req.url);
+
+        // Package metadata endpoint - always succeeds
+        if (url.pathname === "/test-package-404") {
+          return new Response(
+            JSON.stringify({
+              name: "test-package-404",
+              "dist-tags": { latest: "1.0.0" },
+              versions: {
+                "1.0.0": {
+                  name: "test-package-404",
+                  version: "1.0.0",
+                  dist: {
+                    tarball: `${mockRegistryUrl}/test-package-404/-/test-package-404-1.0.0.tgz`,
+                    integrity: "sha512-invalidintegrity==",
+                  },
+                },
+              },
+            }),
+            { headers: { "Content-Type": "application/json" } },
+          );
+        }
+
+        // Tarball endpoint - return 404 to simulate download failure
+        if (url.pathname.endsWith(".tgz")) {
+          return new Response("Not Found", { status: 404 });
+        }
+
+        return new Response("Not found", { status: 404 });
+      },
+    });
+
+    mockRegistryUrl = `http://localhost:${mockRegistry.port}`;
+  });
+
+  afterEach(() => {
+    mockRegistry?.stop();
+  });
+
+  test("bun install exits with non-zero code when tarball download returns 404", async () => {
+    using dir = tempDir("issue-2766", {
+      "package.json": JSON.stringify({
+        name: "test-project",
+        dependencies: {
+          "test-package-404": "1.0.0",
+        },
+      }),
+      "bunfig.toml": `
+[install]
+registry = "${mockRegistryUrl}/"
+`,
+    });
+
+    await using proc = Bun.spawn({
+      cmd: [bunExe(), "install"],
+      cwd: String(dir),
+      env: bunEnv,
+      stdout: "pipe",
+      stderr: "pipe",
+    });
+
+    const [stdout, stderr, exitCode] = await Promise.all([proc.stdout.text(), proc.stderr.text(), proc.exited]);
+
+    // Should have error output about the failed tarball
+    expect(stderr).toContain("404");
+    // Must exit with non-zero code
+    expect(exitCode).not.toBe(0);
+  });
+});