diff --git a/src/core/webview/webviewMessageHandler.ts b/src/core/webview/webviewMessageHandler.ts
index 847ea1a161..61dfa65ce1 100644
--- a/src/core/webview/webviewMessageHandler.ts
+++ b/src/core/webview/webviewMessageHandler.ts
@@ -2367,13 +2367,13 @@ export const webviewMessageHandler = async (
 			const telemetrySetting = message.text as TelemetrySetting
 			const previousSetting = getGlobalState("telemetrySetting") || "unset"
 			const isOptedIn = telemetrySetting !== "disabled"
-			const wasPreviouslyOptedIn = previousSetting !== "disabled"
+			const wasPreviouslyOptedIn = previousSetting !== "disabled" && previousSetting !== "unset"
 
 			// If turning telemetry OFF, fire event BEFORE disabling
 			if (wasPreviouslyOptedIn && !isOptedIn && TelemetryService.hasInstance()) {
 				TelemetryService.instance.captureTelemetrySettingsChanged(previousSetting, telemetrySetting)
 			}
-			// Update the telemetry state
+			// Update the telemetry state - always persist the setting
 			await updateGlobalState("telemetrySetting", telemetrySetting)
 			if (TelemetryService.hasInstance()) {
 				TelemetryService.instance.updateTelemetryState(isOptedIn)
diff --git a/webview-ui/src/components/common/TelemetryBanner.tsx b/webview-ui/src/components/common/TelemetryBanner.tsx
index 3d39b17115..8fb1ba90f3 100644
--- a/webview-ui/src/components/common/TelemetryBanner.tsx
+++ b/webview-ui/src/components/common/TelemetryBanner.tsx
@@ -13,7 +13,8 @@ const TelemetryBanner = () => {
 
 	const handleClose = () => {
 		setIsDismissed(true)
-		vscode.postMessage({ type: "telemetrySetting", text: "enabled" satisfies TelemetrySetting })
+		// When user dismisses the banner without making a choice, default to disabled
+		vscode.postMessage({ type: "telemetrySetting", text: "disabled" satisfies TelemetrySetting })
 	}
 
 	const handleOpenSettings = () => {