diff --git a/client/src/lib/hooks/useConnection.ts b/client/src/lib/hooks/useConnection.ts
index 9ceafa2..cd90d7f 100644
--- a/client/src/lib/hooks/useConnection.ts
+++ b/client/src/lib/hooks/useConnection.ts
@@ -144,7 +144,23 @@ export function useConnection({
     }
   };
 
-  const connect = async () => {
+  const handleAuthError = async (error: unknown) => {
+    if (error instanceof SseError && error.code === 401) {
+      if (sessionStorage.getItem(SESSION_KEYS.REFRESH_TOKEN)) {
+        try {
+          await handleTokenRefresh();
+          return true;
+        } catch (error) {
+          console.error("Token refresh failed:", error);
+        }
+      } else {
+        await initiateOAuthFlow();
+      }
+    }
+    return false;
+  };
+
+  const connect = async (_e?: unknown, retryCount: number = 0) => {
     try {
       const client = new Client<Request, Notification, Result>(
         {
@@ -180,28 +196,7 @@ export function useConnection({
 
       const clientTransport = new SSEClientTransport(backendUrl, {
         eventSourceInit: {
-          fetch: async (url, init) => {
-            const response = await fetch(url, { ...init, headers });
-            
-            if (response.status === 401) {
-              if (sessionStorage.getItem(SESSION_KEYS.REFRESH_TOKEN)) {
-                try {
-                  const newAccessToken = await handleTokenRefresh();
-                  headers["Authorization"] = `Bearer ${newAccessToken}`;
-                  return fetch(url, { ...init, headers });
-                } catch (error) {
-                  console.error("Token refresh failed:", error);
-                }
-              }
-              
-              if (sessionStorage.getItem(SESSION_KEYS.ACCESS_TOKEN)) {
-                await initiateOAuthFlow();
-                return new Response();
-              }
-            }
-            
-            return response;
-          },
+          fetch: (url, init) => fetch(url, { ...init, headers }),
         },
         requestInit: {
           headers,
@@ -226,11 +221,17 @@ export function useConnection({
         await client.connect(clientTransport);
       } catch (error) {
         console.error("Failed to connect to MCP server:", error);
+        const shouldRetry = await handleAuthError(error);
+        if (shouldRetry) {
+          return connect(undefined, retryCount + 1);
+        }
+
         if (error instanceof SseError && error.code === 401) {
-          await initiateOAuthFlow();
+          // Don't set error state if we're about to redirect for auth
           return;
         }
-        throw error;
+        setConnectionStatus("error");
+        return;
       }
 
       const capabilities = client.getServerCapabilities();