diff --git a/litellm/proxy/_types.py b/litellm/proxy/_types.py
index 4053d9d077..8cd2899eab 100644
--- a/litellm/proxy/_types.py
+++ b/litellm/proxy/_types.py
@@ -1113,23 +1113,12 @@ class NewMCPServerRequest(LiteLLMPydanticObjectBase):
     @model_validator(mode="before")
     @classmethod
     def validate_credentials_requirements(cls, values):
-        if not isinstance(values, dict):
-            return values
-
-        auth_type = values.get("auth_type")
-        if auth_type in {MCPAuth.api_key, MCPAuth.bearer_token, MCPAuth.basic}:
-            credentials = values.get("credentials")
-            auth_value = None
-            if isinstance(credentials, dict):
-                auth_value = credentials.get("auth_value")
-            elif hasattr(credentials, "get"):
-                auth_value = credentials.get("auth_value")  # type: ignore[attr-defined]
-
-            if not auth_value:
-                raise ValueError(
-                    "auth_value is required when auth_type is api_key, bearer_token, or basic"
-                )
+        """Validate credentials when provided.
 
+        auth_value is optional — users may configure it dynamically
+        (e.g. via per-request headers or OAuth2 flows) instead of
+        storing a static value at server creation time.
+        """
         return values
 
 
diff --git a/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.test.tsx b/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.test.tsx
new file mode 100644
index 0000000000..2b7273c190
--- /dev/null
+++ b/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.test.tsx
@@ -0,0 +1,388 @@
+import { act, fireEvent, render, screen, waitFor } from "@testing-library/react";
+import userEvent from "@testing-library/user-event";
+import { beforeEach, describe, expect, it, vi } from "vitest";
+import * as networking from "../networking";
+import CreateMCPServer from "./create_mcp_server";
+
+vi.mock("../networking", () => ({
+  createMCPServer: vi.fn(),
+  testMCPToolsListRequest: vi.fn().mockResolvedValue({ tools: [], error: null }),
+}));
+
+vi.mock("@/hooks/useMcpOAuthFlow", () => ({
+  useMcpOAuthFlow: () => ({
+    startOAuthFlow: vi.fn(),
+    status: "idle",
+    error: null,
+    tokenResponse: null,
+  }),
+}));
+
+vi.mock("./mcp_server_cost_config", () => ({
+  default: () => <div data-testid="mcp-cost-config" />,
+}));
+
+vi.mock("./MCPPermissionManagement", () => ({
+  default: () => <div data-testid="mcp-permissions" />,
+}));
+
+vi.mock("./mcp_tool_configuration", () => ({
+  default: () => <div data-testid="mcp-tool-config" />,
+}));
+
+vi.mock("./mcp_connection_status", () => ({
+  default: () => <div data-testid="mcp-connection-status" />,
+}));
+
+vi.mock("./StdioConfiguration", () => ({
+  default: () => <div data-testid="stdio-config" />,
+}));
+
+const defaultProps = {
+  userRole: "Admin",
+  accessToken: "test-token",
+  onCreateSuccess: vi.fn(),
+  isModalVisible: true,
+  setModalVisible: vi.fn(),
+  availableAccessGroups: ["group-a", "group-b"],
+};
+
+/** Helper: get the server_name input by its Ant Form id */
+const getServerNameInput = () => document.getElementById("server_name") as HTMLInputElement;
+
+/** Helper: select a dropdown option by opening a select near a label and clicking an option */
+async function selectAntOption(labelText: string, optionText: string) {
+  const label = screen.getByText(labelText);
+  const formItem = label.closest(".ant-form-item")!;
+  const select = formItem.querySelector(".ant-select");
+  act(() => {
+    fireEvent.mouseDown(select!.querySelector(".ant-select-selector")!);
+  });
+
+  await waitFor(() => {
+    const options = document.querySelectorAll(".ant-select-item-option");
+    expect(options.length).toBeGreaterThan(0);
+  });
+
+  const option = Array.from(document.querySelectorAll(".ant-select-item-option")).find((el) =>
+    el.textContent?.includes(optionText),
+  );
+  expect(option).toBeTruthy();
+  act(() => {
+    fireEvent.click(option!);
+  });
+}
+
+describe("CreateMCPServer", () => {
+  beforeEach(() => {
+    vi.clearAllMocks();
+  });
+
+  it("should render the modal with title when visible", () => {
+    render(<CreateMCPServer {...defaultProps} />);
+
+    expect(screen.getByText("Add New MCP Server")).toBeInTheDocument();
+  });
+
+  it("should not render when user is not an admin", () => {
+    render(<CreateMCPServer {...defaultProps} userRole="Internal User" />);
+
+    expect(screen.queryByText("Add New MCP Server")).not.toBeInTheDocument();
+  });
+
+  it("should show transport type options", async () => {
+    render(<CreateMCPServer {...defaultProps} />);
+
+    await selectAntOption("Transport Type", "Streamable HTTP");
+
+    // Verify the option was applied by checking the URL field appears
+    await waitFor(() => {
+      expect(screen.getByPlaceholderText("https://your-mcp-server.com")).toBeInTheDocument();
+    });
+  });
+
+  describe("when HTTP transport is selected", () => {
+    async function selectHttpTransport() {
+      render(<CreateMCPServer {...defaultProps} />);
+      await selectAntOption("Transport Type", "Streamable HTTP");
+
+      // Wait for URL field to appear (confirms transport was set)
+      await waitFor(() => {
+        expect(screen.getByPlaceholderText("https://your-mcp-server.com")).toBeInTheDocument();
+      });
+    }
+
+    it("should show URL field after selecting HTTP transport", async () => {
+      await selectHttpTransport();
+
+      expect(screen.getByPlaceholderText("https://your-mcp-server.com")).toBeInTheDocument();
+    });
+
+    it("should show auth type dropdown after selecting HTTP transport", async () => {
+      await selectHttpTransport();
+
+      expect(screen.getByText("Authentication")).toBeInTheDocument();
+    });
+
+    it("should show auth value field when API Key auth type is selected", async () => {
+      await selectHttpTransport();
+
+      await selectAntOption("Authentication", "API Key");
+
+      await waitFor(() => {
+        expect(screen.getByText("Authentication Value")).toBeInTheDocument();
+      });
+    });
+
+    it("should not require auth value when creating a server with API Key auth type", async () => {
+      await selectHttpTransport();
+
+      const user = userEvent.setup();
+
+      // Fill in server name (use id to avoid duplicate placeholder)
+      const nameInput = getServerNameInput();
+      await user.type(nameInput, "Test_Server");
+
+      // Fill in URL
+      const urlInput = screen.getByPlaceholderText("https://your-mcp-server.com");
+      await user.type(urlInput, "https://example.com/mcp");
+
+      // Select API Key auth type
+      await selectAntOption("Authentication", "API Key");
+
+      await waitFor(() => {
+        expect(screen.getByText("Authentication Value")).toBeInTheDocument();
+      });
+
+      // Leave auth value empty and submit
+      vi.mocked(networking.createMCPServer).mockResolvedValue({
+        server_id: "new-server-1",
+        server_name: "Test_Server",
+        alias: "Test_Server",
+        url: "https://example.com/mcp",
+        transport: "http",
+        auth_type: "api_key",
+        created_at: "2024-01-01T00:00:00Z",
+        created_by: "user-1",
+        updated_at: "2024-01-01T00:00:00Z",
+        updated_by: "user-1",
+      });
+
+      const submitButton = screen.getByRole("button", { name: "Add MCP Server" });
+      await act(async () => {
+        fireEvent.click(submitButton);
+      });
+
+      // The form should submit without validation error on auth_value
+      await waitFor(() => {
+        expect(networking.createMCPServer).toHaveBeenCalledTimes(1);
+      });
+    });
+
+    it("should not require auth value when creating a server with Bearer Token auth type", async () => {
+      await selectHttpTransport();
+
+      const user = userEvent.setup();
+
+      const nameInput = getServerNameInput();
+      await user.type(nameInput, "Test_Server");
+
+      const urlInput = screen.getByPlaceholderText("https://your-mcp-server.com");
+      await user.type(urlInput, "https://example.com/mcp");
+
+      await selectAntOption("Authentication", "Bearer Token");
+
+      await waitFor(() => {
+        expect(screen.getByText("Authentication Value")).toBeInTheDocument();
+      });
+
+      // Leave auth value empty and submit
+      vi.mocked(networking.createMCPServer).mockResolvedValue({
+        server_id: "new-server-1",
+        server_name: "Test_Server",
+        alias: "Test_Server",
+        url: "https://example.com/mcp",
+        transport: "http",
+        auth_type: "bearer_token",
+        created_at: "2024-01-01T00:00:00Z",
+        created_by: "user-1",
+        updated_at: "2024-01-01T00:00:00Z",
+        updated_by: "user-1",
+      });
+
+      const submitButton = screen.getByRole("button", { name: "Add MCP Server" });
+      await act(async () => {
+        fireEvent.click(submitButton);
+      });
+
+      await waitFor(() => {
+        expect(networking.createMCPServer).toHaveBeenCalledTimes(1);
+      });
+    });
+
+    it("should successfully create a server when auth value is provided", async () => {
+      await selectHttpTransport();
+
+      const user = userEvent.setup();
+
+      const nameInput = getServerNameInput();
+      await user.type(nameInput, "My_Server");
+
+      const urlInput = screen.getByPlaceholderText("https://your-mcp-server.com");
+      await user.type(urlInput, "https://example.com/mcp");
+
+      await selectAntOption("Authentication", "API Key");
+
+      await waitFor(() => {
+        expect(screen.getByText("Authentication Value")).toBeInTheDocument();
+      });
+
+      // Fill in auth value
+      const authInput = screen.getByPlaceholderText("Enter token or secret");
+      await user.type(authInput, "my-secret-key");
+
+      vi.mocked(networking.createMCPServer).mockResolvedValue({
+        server_id: "new-server-1",
+        server_name: "My_Server",
+        alias: "My_Server",
+        url: "https://example.com/mcp",
+        transport: "http",
+        auth_type: "api_key",
+        created_at: "2024-01-01T00:00:00Z",
+        created_by: "user-1",
+        updated_at: "2024-01-01T00:00:00Z",
+        updated_by: "user-1",
+      });
+
+      const submitButton = screen.getByRole("button", { name: "Add MCP Server" });
+      await act(async () => {
+        fireEvent.click(submitButton);
+      });
+
+      await waitFor(() => {
+        expect(networking.createMCPServer).toHaveBeenCalledTimes(1);
+      });
+
+      const [token, payload] = vi.mocked(networking.createMCPServer).mock.calls[0];
+      expect(token).toBe("test-token");
+      expect(payload.credentials).toEqual({ auth_value: "my-secret-key" });
+    });
+
+    it("should not show auth value field when None auth type is selected", async () => {
+      await selectHttpTransport();
+
+      await selectAntOption("Authentication", "None");
+
+      // Auth value field should not appear for "None"
+      await waitFor(() => {
+        expect(screen.queryByText("Authentication Value")).not.toBeInTheDocument();
+      });
+    });
+
+    it("should successfully create a server with no auth", async () => {
+      await selectHttpTransport();
+
+      const user = userEvent.setup();
+
+      const nameInput = getServerNameInput();
+      await user.type(nameInput, "No_Auth_Server");
+
+      const urlInput = screen.getByPlaceholderText("https://your-mcp-server.com");
+      await user.type(urlInput, "https://example.com/mcp");
+
+      await selectAntOption("Authentication", "None");
+
+      vi.mocked(networking.createMCPServer).mockResolvedValue({
+        server_id: "new-server-1",
+        server_name: "No_Auth_Server",
+        alias: "No_Auth_Server",
+        url: "https://example.com/mcp",
+        transport: "http",
+        auth_type: "none",
+        created_at: "2024-01-01T00:00:00Z",
+        created_by: "user-1",
+        updated_at: "2024-01-01T00:00:00Z",
+        updated_by: "user-1",
+      });
+
+      const submitButton = screen.getByRole("button", { name: "Add MCP Server" });
+      await act(async () => {
+        fireEvent.click(submitButton);
+      });
+
+      await waitFor(() => {
+        expect(networking.createMCPServer).toHaveBeenCalledTimes(1);
+      });
+
+      const [, payload] = vi.mocked(networking.createMCPServer).mock.calls[0];
+      expect(payload.auth_type).toBe("none");
+      // No credentials should be sent for "none" auth
+      expect(payload.credentials).toBeUndefined();
+    });
+  });
+
+  describe("when modal is cancelled", () => {
+    it("should call setModalVisible(false) when cancel is clicked", async () => {
+      render(<CreateMCPServer {...defaultProps} />);
+
+      const cancelButton = screen.getByRole("button", { name: "Cancel" });
+      await act(async () => {
+        fireEvent.click(cancelButton);
+      });
+
+      expect(defaultProps.setModalVisible).toHaveBeenCalledWith(false);
+    });
+  });
+
+  describe("when stdio transport is selected", () => {
+    it("should not show auth type or URL fields", async () => {
+      render(<CreateMCPServer {...defaultProps} />);
+
+      await selectAntOption("Transport Type", "Standard Input/Output");
+
+      // Auth and URL fields should not be present for stdio
+      await waitFor(() => {
+        expect(screen.queryByText("Authentication")).not.toBeInTheDocument();
+        expect(screen.queryByPlaceholderText("https://your-mcp-server.com")).not.toBeInTheDocument();
+      });
+    });
+  });
+
+  describe("when prefillData is provided", () => {
+    it("should populate form fields from discovery data", async () => {
+      const prefillData = {
+        name: "github-mcp",
+        title: "GitHub MCP",
+        description: "GitHub integration server",
+        category: "Development",
+        transport: "http",
+        url: "https://github-mcp.example.com",
+      };
+
+      render(<CreateMCPServer {...defaultProps} prefillData={prefillData} />);
+
+      await waitFor(() => {
+        // Server name should be sanitized (hyphens replaced with underscores)
+        const nameInput = getServerNameInput();
+        expect(nameInput).toHaveValue("github_mcp");
+      });
+    });
+  });
+
+  describe("with back to discovery button", () => {
+    it("should show back button and call onBackToDiscovery when clicked", async () => {
+      const onBackToDiscovery = vi.fn();
+      render(<CreateMCPServer {...defaultProps} onBackToDiscovery={onBackToDiscovery} />);
+
+      // The back arrow button should be visible
+      const backButton = screen.getByText("←");
+      expect(backButton).toBeInTheDocument();
+
+      await act(async () => {
+        fireEvent.click(backButton);
+      });
+
+      expect(onBackToDiscovery).toHaveBeenCalledTimes(1);
+    });
+  });
+});
diff --git a/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.tsx b/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.tsx
index bd7e3f9034..0062ca5db4 100644
--- a/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.tsx
+++ b/ui/litellm-dashboard/src/components/mcp_tools/create_mcp_server.tsx
@@ -47,7 +47,10 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
   const [isLoading, setIsLoading] = useState(false);
   const [costConfig, setCostConfig] = useState<MCPServerCostInfo>({});
   const [formValues, setFormValues] = useState<Record<string, any>>({});
-  const [pendingRestoredValues, setPendingRestoredValues] = useState<{ values: Record<string, any>; transport?: string } | null>(null);
+  const [pendingRestoredValues, setPendingRestoredValues] = useState<{
+    values: Record<string, any>;
+    transport?: string;
+  } | null>(null);
   const [aliasManuallyEdited, setAliasManuallyEdited] = useState(false);
   const [tools, setTools] = useState<any[]>([]);
   const [allowedTools, setAllowedTools] = useState<string[]>([]);
@@ -129,7 +132,7 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
     },
     onTokenReceived: (token) => {
       setOauthAccessToken(token?.access_token ?? null);
-      
+
       if (token?.access_token) {
         const credentials = {
           access_token: token.access_token,
@@ -137,11 +140,11 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
           ...(token.expires_in && { expires_in: token.expires_in }),
           ...(token.scope && { scope: token.scope }),
         };
-        
+
         form.setFieldsValue({ credentials });
-        
+
         NotificationsManager.success(
-          "OAuth authorization successful! Please click 'Create MCP Server' to save the configuration."
+          "OAuth authorization successful! Please click 'Create MCP Server' to save the configuration.",
         );
       }
     },
@@ -356,7 +359,8 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
       };
 
       payload.static_headers = staticHeaders;
-      const includeCredentials = restValues.auth_type && AUTH_TYPES_REQUIRING_CREDENTIALS.includes(restValues.auth_type);
+      const includeCredentials =
+        restValues.auth_type && AUTH_TYPES_REQUIRING_CREDENTIALS.includes(restValues.auth_type);
 
       if (includeCredentials && credentialsPayload && Object.keys(credentialsPayload).length > 0) {
         payload.credentials = credentialsPayload;
@@ -534,10 +538,7 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
                 </span>
               }
               name="alias"
-              rules={[
-                { required: false },
-                { validator: (_, value) => validateMCPServerName(value) },
-              ]}
+              rules={[{ required: false }, { validator: (_, value) => validateMCPServerName(value) }]}
             >
               <TextInput
                 placeholder="e.g., GitHub_MCP, Zapier_MCP, etc."
@@ -647,7 +648,14 @@ const CreateMCPServer: React.FC<CreateMCPServerProps> = ({
                   </span>
                 }
                 name={["credentials", "auth_value"]}
-                rules={[{ required: true, message: "Please enter the authentication value" }]}
+                rules={[
+                  {
+                    validator: (_, value) =>
+                      value && typeof value === "string" && value.trim() === ""
+                        ? Promise.reject(new Error("Authentication value cannot be empty whitespace"))
+                        : Promise.resolve(),
+                  },
+                ]}
               >
                 <TextInput
                   type="password"