diff --git a/public/i18n/en.yaml b/public/i18n/en.yaml
index 6fd8164d11..b9ccaba157 100644
--- a/public/i18n/en.yaml
+++ b/public/i18n/en.yaml
@@ -767,6 +767,8 @@ kyma-companion:
   error:
     title: Service is interrupted
     subtitle: A temporary interruption occured. Please try again.
+    chat-error: An error occurred
+    suggestions-error: No suggestions available
   introduction: Hi, I am your Kyma assistant! You can ask me any question, and I will try to help you to the best of my abilities. Meanwhile, you can check the suggested questions below; you may find them helpful!
   introduction-no-suggestions: Hi, I am your Kyma assistant! You can ask me any question, and I will try to help you to the best of my abilities. While I don't have any initial suggestions for this resource, feel free to ask me anything you'd like!
   placeholder: Message Joule
diff --git a/src/components/KymaCompanion/api/getChatResponse.ts b/src/components/KymaCompanion/api/getChatResponse.ts
index 741420f9ce..1b101da87f 100644
--- a/src/components/KymaCompanion/api/getChatResponse.ts
+++ b/src/components/KymaCompanion/api/getChatResponse.ts
@@ -15,7 +15,7 @@ type GetChatResponseArgs = {
   resourceName?: string;
   sessionID: string;
   handleChatResponse: (chunk: MessageChunk) => void;
-  handleError: (error?: Error) => void;
+  handleError: (error?: string) => void;
   clusterUrl: string;
   clusterAuth: ClusterAuth;
   certificateAuthorityData: string;
@@ -87,7 +87,7 @@ function readChunk(
   reader: ReadableStreamDefaultReader<Uint8Array>,
   decoder: TextDecoder,
   handleChatResponse: (chunk: any) => void,
-  handleError: (error?: Error) => void,
+  handleError: (error?: string) => void,
   sessionID: string,
 ) {
   reader
diff --git a/src/components/KymaCompanion/api/getFollowUpQuestions.ts b/src/components/KymaCompanion/api/getFollowUpQuestions.ts
index 709994a6b6..eb96999f67 100644
--- a/src/components/KymaCompanion/api/getFollowUpQuestions.ts
+++ b/src/components/KymaCompanion/api/getFollowUpQuestions.ts
@@ -3,7 +3,7 @@ import { getClusterConfig } from 'state/utils/getBackendInfo';
 interface GetFollowUpQuestionsParams {
   sessionID?: string;
   handleFollowUpQuestions: (results: any) => void;
-  handleError: (error?: Error) => void;
+  handleFollowUpError: () => void;
   clusterUrl: string;
   token: string;
   certificateAuthorityData: string;
@@ -12,7 +12,7 @@ interface GetFollowUpQuestionsParams {
 export default async function getFollowUpQuestions({
   sessionID = '',
   handleFollowUpQuestions,
-  handleError,
+  handleFollowUpError,
   clusterUrl,
   token,
   certificateAuthorityData,
@@ -35,10 +35,13 @@ export default async function getFollowUpQuestions({
     });
 
     const promptSuggestions = (await response.json()).promptSuggestions;
+    if (!promptSuggestions) {
+      throw new Error('No follow-up questions available');
+    }
 
     handleFollowUpQuestions(promptSuggestions);
   } catch (error) {
-    handleError();
+    handleFollowUpError();
     console.error('Error fetching data:', error);
   }
 }
diff --git a/src/components/KymaCompanion/components/Chat/Chat.scss b/src/components/KymaCompanion/components/Chat/Chat.scss
index 239efae6f1..b736b7c50b 100644
--- a/src/components/KymaCompanion/components/Chat/Chat.scss
+++ b/src/components/KymaCompanion/components/Chat/Chat.scss
@@ -12,17 +12,14 @@
       display: none;
     }
 
-    .left-aligned {
+    .message-container.left-aligned {
       position: relative;
       align-self: flex-start;
-      border-radius: 8px 8px 8px 0;
     }
 
-    .right-aligned {
+    .message-container.right-aligned {
       position: relative;
       align-self: flex-end;
-      border-radius: 8px 8px 0 8px;
-      background-color: var(--sapAssistant_Question_Background);
     }
   }
 
diff --git a/src/components/KymaCompanion/components/Chat/Chat.tsx b/src/components/KymaCompanion/components/Chat/Chat.tsx
index fd74891475..7ad7be8219 100644
--- a/src/components/KymaCompanion/components/Chat/Chat.tsx
+++ b/src/components/KymaCompanion/components/Chat/Chat.tsx
@@ -11,6 +11,7 @@ import { authDataState } from 'state/authDataAtom';
 import getFollowUpQuestions from 'components/KymaCompanion/api/getFollowUpQuestions';
 import getChatResponse from 'components/KymaCompanion/api/getChatResponse';
 import { usePromptSuggestions } from 'components/KymaCompanion/hooks/usePromptSuggestions';
+import { AIError } from '../KymaCompanion';
 import './Chat.scss';
 
 export interface MessageType {
@@ -19,6 +20,7 @@ export interface MessageType {
   isLoading: boolean;
   suggestions?: string[];
   suggestionsLoading?: boolean;
+  hasError?: boolean | undefined;
 }
 
 type ChatProps = {
@@ -28,8 +30,8 @@ type ChatProps = {
   setLoading: React.Dispatch<React.SetStateAction<boolean>>;
   isReset: boolean;
   setIsReset: React.Dispatch<React.SetStateAction<boolean>>;
-  error: string | null;
-  setError: React.Dispatch<React.SetStateAction<string | null>>;
+  error: AIError;
+  setError: React.Dispatch<React.SetStateAction<AIError>>;
 };
 
 export const Chat = ({
@@ -78,18 +80,34 @@ export const Chat = ({
 
   const handleChatResponse = (response: MessageChunk) => {
     const isLoading = response?.data?.answer?.next !== '__end__';
+
     if (!isLoading) {
-      setFollowUpLoading();
-      getFollowUpQuestions({
-        sessionID,
-        handleFollowUpQuestions,
-        handleError,
-        clusterUrl: cluster.currentContext.cluster.cluster.server,
-        token: authData.token,
-        certificateAuthorityData:
-          cluster.currentContext.cluster.cluster['certificate-authority-data'],
-      });
+      const finalTask = response.data.answer?.tasks?.at(-1);
+      const hasError = finalTask?.status === 'error';
+
+      if (hasError) {
+        const allTasksError =
+          response.data.answer?.tasks?.every(task => task.status === 'error') ??
+          false;
+        const displayRetry = response.data.error !== null || allTasksError;
+        handleError(response.data.answer.content, displayRetry);
+        return;
+      } else {
+        setFollowUpLoading();
+        getFollowUpQuestions({
+          sessionID,
+          handleFollowUpQuestions,
+          handleFollowUpError,
+          clusterUrl: cluster.currentContext.cluster.cluster.server,
+          token: authData.token,
+          certificateAuthorityData:
+            cluster.currentContext.cluster.cluster[
+              'certificate-authority-data'
+            ],
+        });
+      }
     }
+
     setChatHistory(prevMessages => {
       const [latestMessage] = prevMessages.slice(-1);
       return prevMessages.slice(0, -1).concat({
@@ -101,7 +119,7 @@ export const Chat = ({
   };
 
   const setFollowUpLoading = () => {
-    setError(null);
+    setError({ message: null, displayRetry: false });
     setLoading(true);
     updateLatestMessage({ suggestionsLoading: true });
   };
@@ -111,14 +129,36 @@ export const Chat = ({
     setLoading(false);
   };
 
-  const handleError = (error?: Error) => {
-    setError(error?.message ?? t('kyma-companion.error.subtitle'));
+  const handleFollowUpError = () => {
+    updateLatestMessage({
+      hasError: true,
+      suggestionsLoading: false,
+    });
+    setLoading(false);
+  };
+
+  const handleError = (error?: string, displayRetry?: boolean) => {
+    const errorMessage = error ?? t('kyma-companion.error.subtitle') ?? '';
+    setError({
+      message: errorMessage,
+      displayRetry: displayRetry ?? false,
+    });
     setChatHistory(prevItems => prevItems.slice(0, -1));
+    updateLatestMessage({ hasError: true });
     setLoading(false);
   };
 
+  const retryPreviousPrompt = () => {
+    const previousPrompt = chatHistory.at(-1)?.messageChunks[0].data.answer
+      .content;
+    if (previousPrompt) {
+      setChatHistory(prevItems => prevItems.slice(0, -1));
+      sendPrompt(previousPrompt);
+    }
+  };
+
   const sendPrompt = (query: string) => {
-    setError(null);
+    setError({ message: null, displayRetry: false });
     setLoading(true);
     addMessage({
       author: 'user',
@@ -225,12 +265,15 @@ export const Chat = ({
         ref={containerRef}
       >
         {chatHistory.map((message, index) => {
+          const isLast = index === chatHistory.length - 1;
           return message.author === 'ai' ? (
             <React.Fragment key={index}>
               <Message
-                className="left-aligned sap-margin-begin-tiny"
+                author="ai"
                 messageChunks={message.messageChunks}
                 isLoading={message.isLoading}
+                hasError={message?.hasError ?? false}
+                isLatestMessage={isLast}
               />
               {index === chatHistory.length - 1 && !message.isLoading && (
                 <Bubbles
@@ -242,19 +285,21 @@ export const Chat = ({
             </React.Fragment>
           ) : (
             <Message
+              author="user"
               key={index}
-              className="right-aligned sap-margin-end-tiny"
               messageChunks={message.messageChunks}
               isLoading={message.isLoading}
+              hasError={message?.hasError ?? false}
+              isLatestMessage={isLast}
               disableFormatting={true}
             />
           );
         })}
-        {error && (
+        {error.message && (
           <ErrorMessage
-            errorMessage={error}
-            errorOnInitialMessage={chatHistory.length === 0}
-            retryPrompt={() => {}}
+            errorMessage={error.message ?? t('kyma-companion.error.subtitle')}
+            retryPrompt={() => retryPreviousPrompt()}
+            displayRetry={error.displayRetry}
           />
         )}
       </div>
diff --git a/src/components/KymaCompanion/components/Chat/messages/ErrorMessage.tsx b/src/components/KymaCompanion/components/Chat/messages/ErrorMessage.tsx
index c92725f92e..c1d936903d 100644
--- a/src/components/KymaCompanion/components/Chat/messages/ErrorMessage.tsx
+++ b/src/components/KymaCompanion/components/Chat/messages/ErrorMessage.tsx
@@ -1,30 +1,38 @@
-import { Button, Card, IllustratedMessage } from '@ui5/webcomponents-react';
+import {
+  Button,
+  Card,
+  IllustratedMessage,
+  Text,
+} from '@ui5/webcomponents-react';
 import { useTranslation } from 'react-i18next';
 
 interface ErrorMessageProps {
   errorMessage: string;
-  errorOnInitialMessage: boolean;
+  displayRetry: boolean;
   retryPrompt: () => void;
 }
 
 export default function ErrorMessage({
   errorMessage,
-  errorOnInitialMessage,
+  displayRetry,
   retryPrompt,
 }: ErrorMessageProps): JSX.Element {
   const { t } = useTranslation();
 
   return (
-    <div className="sap-margin-x-tiny sap-margin-y-small">
+    <div className="sap-margin-x-tiny sap-margin-bottom-small">
       <Card>
         <IllustratedMessage
           name="Connection"
+          design="Spot"
           key="error-message"
           titleText={t('kyma-companion.error.title')}
-          subtitleText={errorMessage}
+          subtitle={
+            <Text className="sap-margin-bottom-tiny">{errorMessage}</Text>
+          }
           className="sap-margin-top-small no-padding"
         >
-          {errorOnInitialMessage && (
+          {displayRetry && (
             <Button
               onClick={retryPrompt}
               design="Emphasized"
diff --git a/src/components/KymaCompanion/components/Chat/messages/Message.scss b/src/components/KymaCompanion/components/Chat/messages/Message.scss
index d9fdb6233f..957f6bd2d7 100644
--- a/src/components/KymaCompanion/components/Chat/messages/Message.scss
+++ b/src/components/KymaCompanion/components/Chat/messages/Message.scss
@@ -1,50 +1,76 @@
-.message {
-  max-width: 80%;
-  padding: 12px;
-  background-color: var(--sapAssistant_Answer_Background);
+.message-container {
+  margin-inline: 0.5rem;
+  width: calc(100% - 1rem);
+  display: flex;
+  flex-direction: column;
+  gap: 0.25rem;
 
-  &.no-background {
-    background-color: var(--sapTile_Background);
+  &.left-aligned {
+    align-items: start;
   }
 
-  &.loading {
+  &.right-aligned {
+    align-items: end;
+  }
+
+  .message-error {
+    max-width: 80%;
     display: flex;
-    flex-direction: column;
-    gap: 16px;
+    justify-content: flex-end;
+    align-items: center;
+    gap: 0.5rem;
 
-    .loading-item {
-      gap: 0.5rem;
+    .error-text {
+      color: var(--sapNegativeTextColor);
+      white-space: nowrap;
+      overflow: hidden;
+      text-overflow: ellipsis;
+      display: inline-block;
+    }
 
-      .text {
-        flex-grow: 1;
-      }
+    .error-icon {
+      flex-shrink: 0;
+      color: var(--sapNegativeTextColor);
+    }
+  }
+
+  .message {
+    max-width: 80%;
+    padding: 12px;
+    background-color: var(--sapAssistant_Answer_Background);
+
+    &.right-aligned {
+      border-radius: 8px 8px 0 8px;
+      background-color: var(--sapAssistant_Question_Background);
 
-      .loading-status {
-        display: flex;
-        align-items: center;
-        justify-content: center;
-        min-width: 35px;
+      &.error {
+        border: 1px solid var(--sapErrorBorderColor);
+        background-color: var(--sapErrorBackground);
       }
     }
-  }
 
-  .bold {
-    font-weight: bold;
-    font-size: 0.925rem;
-  }
+    &.left-aligned {
+      border-radius: 8px 8px 8px 0;
+    }
 
-  .highlighted {
-    background-color: var(--sapContent_LabelColor);
-    color: white;
-    padding: 0.1rem 0.2rem;
-    margin: 0.1rem 0;
-    border-radius: 4px;
-  }
+    .bold {
+      font-weight: bold;
+      font-size: 0.925rem;
+    }
+
+    .highlighted {
+      background-color: var(--sapContent_LabelColor);
+      color: white;
+      padding: 0.1rem 0.2rem;
+      margin: 0.1rem 0;
+      border-radius: 4px;
+    }
 
-  .text {
-    line-height: 1.35;
-    white-space: pre-line;
-    display: inline;
+    .text {
+      line-height: 1.35;
+      white-space: pre-line;
+      display: inline;
+    }
   }
 }
 
diff --git a/src/components/KymaCompanion/components/Chat/messages/Message.tsx b/src/components/KymaCompanion/components/Chat/messages/Message.tsx
index e6ab921a46..2e4ecae18c 100644
--- a/src/components/KymaCompanion/components/Chat/messages/Message.tsx
+++ b/src/components/KymaCompanion/components/Chat/messages/Message.tsx
@@ -1,15 +1,9 @@
-import { Text } from '@ui5/webcomponents-react';
+import { Icon, Text } from '@ui5/webcomponents-react';
+import { useTranslation } from 'react-i18next';
 import { formatMessage } from 'components/KymaCompanion/utils/formatMarkdown';
 import TasksList from './TasksList';
 import './Message.scss';
 
-interface MessageProps {
-  className: string;
-  messageChunks: MessageChunk[];
-  isLoading: boolean;
-  disableFormatting?: boolean;
-}
-
 export interface MessageChunk {
   event?: string;
   data: {
@@ -24,30 +18,58 @@ export interface MessageChunk {
       }[];
       next: string;
     };
+    error?: string | null;
   };
 }
 
+interface MessageProps {
+  author: 'user' | 'ai';
+  messageChunks: MessageChunk[];
+  isLoading: boolean;
+  hasError: boolean;
+  isLatestMessage: boolean;
+  disableFormatting?: boolean;
+}
+
 export default function Message({
-  className,
+  author,
   messageChunks,
   isLoading,
+  hasError,
+  isLatestMessage,
   disableFormatting = false,
 }: MessageProps): JSX.Element {
+  const { t } = useTranslation();
   if (isLoading) {
     return <TasksList messageChunks={messageChunks} />;
   }
-  const text = messageChunks.slice(-1)[0]?.data?.answer?.content;
 
-  let segmentedText = null;
-  if (disableFormatting) {
-    segmentedText = text;
-  } else {
-    segmentedText = formatMessage(text);
-  }
+  const displayError =
+    hasError &&
+    ((author === 'user' && !isLatestMessage) ||
+      (author === 'ai' && isLatestMessage));
+
+  const finalChunk = messageChunks.at(-1);
+  const text = finalChunk?.data?.answer?.content ?? '';
+  const segmentedText = disableFormatting ? text : formatMessage(text);
+
+  const className = author === 'user' ? 'right-aligned' : 'left-aligned';
 
   return (
-    <div className={'message ' + className}>
-      <Text className="text">{segmentedText}</Text>
+    <div className={'message-container ' + className}>
+      <div className={`message ${className}${displayError ? ' error' : ''}`}>
+        <Text className="text">{segmentedText}</Text>
+      </div>
+      {displayError && (
+        <div className={'message-error ' + className}>
+          <Text className="error-text">
+            {author === 'user'
+              ? t('kyma-companion.error.chat-error')
+              : t('kyma-companion.error.suggestions-error')}
+          </Text>
+          <Icon name="error" design="Negative" className="error-icon" />
+        </div>
+      )}
     </div>
   );
 }
diff --git a/src/components/KymaCompanion/components/Chat/messages/TasksList.scss b/src/components/KymaCompanion/components/Chat/messages/TasksList.scss
index c36f5fda3d..bd57fd099e 100644
--- a/src/components/KymaCompanion/components/Chat/messages/TasksList.scss
+++ b/src/components/KymaCompanion/components/Chat/messages/TasksList.scss
@@ -1,3 +1,31 @@
+.tasks-list {
+  max-width: 80%;
+  padding: 12px;
+  background-color: var(--sapTile_Background);
+  display: flex;
+  flex-direction: column;
+  gap: 16px;
+
+  .loading-item {
+    gap: 0.5rem;
+
+    .text {
+      flex-grow: 1;
+    }
+
+    .loading-status {
+      display: flex;
+      align-items: center;
+      justify-content: center;
+      min-width: 35px;
+    }
+  }
+}
+
+.ai-busy-indicator {
+  width: fit-content;
+}
+
 .ai-steps-loader {
   position: relative;
   min-width: 24px;
diff --git a/src/components/KymaCompanion/components/Chat/messages/TasksList.tsx b/src/components/KymaCompanion/components/Chat/messages/TasksList.tsx
index a6b4f46bae..e84f3ffe2f 100644
--- a/src/components/KymaCompanion/components/Chat/messages/TasksList.tsx
+++ b/src/components/KymaCompanion/components/Chat/messages/TasksList.tsx
@@ -5,20 +5,27 @@ import {
   ObjectStatus,
 } from '@ui5/webcomponents-react';
 import { useTranslation } from 'react-i18next';
+import { MessageChunk } from './Message';
 import './TasksList.scss';
 
+interface TaskListProps {
+  messageChunks: MessageChunk[];
+}
+
 export default function TasksList({
-  className,
   messageChunks,
-}: MessageProps): JSX.Element {
+}: TaskListProps): JSX.Element {
   const { t } = useTranslation();
   const chunksLength = messageChunks?.length;
-  const checkIfAllCompleted = () =>
+
+  const allTasksCompleted =
+    chunksLength > 0 &&
     messageChunks[chunksLength - 1]?.data?.answer?.tasks?.every(
       task => task?.status === 'completed',
     );
+
   return (
-    <div className={'message loading no-background ' + className}>
+    <div className="tasks-list">
       {chunksLength > 0 ? (
         <>
           {messageChunks[chunksLength - 1]?.data?.answer?.tasks?.map(
@@ -45,7 +52,7 @@ export default function TasksList({
               );
             },
           )}
-          {checkIfAllCompleted() && (
+          {allTasksCompleted && (
             <FlexBox
               justifyContent="SpaceBetween"
               alignItems="Center"
diff --git a/src/components/KymaCompanion/components/KymaCompanion.tsx b/src/components/KymaCompanion/components/KymaCompanion.tsx
index 9e05811bd6..0937895b36 100644
--- a/src/components/KymaCompanion/components/KymaCompanion.tsx
+++ b/src/components/KymaCompanion/components/KymaCompanion.tsx
@@ -9,6 +9,11 @@ import {
 import { Chat, MessageType } from './Chat/Chat';
 import './KymaCompanion.scss';
 
+export interface AIError {
+  message: string | null;
+  displayRetry: boolean;
+}
+
 export default function KymaCompanion() {
   const { t } = useTranslation();
 
@@ -38,13 +43,19 @@ export default function KymaCompanion() {
   const [chatHistory, setChatHistory] = useState<MessageType[]>(
     initialChatHistory,
   );
-  const [error, setError] = useState<string | null>(null);
+  const [error, setError] = useState<AIError>({
+    message: null,
+    displayRetry: false,
+  });
 
   function handleRefresh() {
     setChatHistory(() => {
       return initialChatHistory;
     });
-    setError(null);
+    setError({
+      message: null,
+      displayRetry: false,
+    });
     setIsReset(true);
   }