diff --git a/apps/playground/src/hooks/useChat.ts b/apps/playground/src/hooks/useChat.ts
index a2b7fca..dba2d32 100644
--- a/apps/playground/src/hooks/useChat.ts
+++ b/apps/playground/src/hooks/useChat.ts
@@ -4,38 +4,51 @@ import { useChat as useAISDKChat } from '@ai-sdk/react';
 import { DefaultChatTransport } from 'ai';
 import { nanoid } from 'nanoid';
 import { useState } from 'react';
-import { useEnvVars } from '~/components/sidebar/SettingsSidebar';
 
 /**
  * Custom chat hook that wraps the official @ai-sdk/react useChat
  * Handles SSE streaming with tool calls and UI message protocol
  * Includes conversation ID tracking for dynamic tool loading
  */
+const ENV_STORAGE_KEY = 'tpmjs-playground-env-vars';
+
 export function useChat(): ReturnType<typeof useAISDKChat> & { conversationId: string } {
   // Generate stable conversation ID for session
   const [conversationId] = useState(() => nanoid());
 
-  // Get environment variables from settings sidebar
-  const envVars = useEnvVars();
-
-  // Convert env vars to object format (called fresh on each request)
-  const buildEnvObject = () =>
-    envVars.reduce(
-      (acc, { key, value }) => {
-        acc[key] = value;
-        return acc;
-      },
-      {} as Record<string, string>
-    );
-
   const chat = useAISDKChat({
     transport: new DefaultChatTransport({
       api: '/api/chat',
-      // Use function body so it's evaluated on each request (not just once on mount)
-      body: () => ({
-        conversationId, // Pass conversation ID to API
-        env: buildEnvObject(), // Pass LATEST environment variables to API
-      }),
+      // Use function body that reads FRESH from localStorage on each request
+      // This avoids React closure issues where envVars would be stale
+      body: () => {
+        // Read env vars directly from localStorage (not from React state)
+        let envVars: Array<{ key: string; value: string }> = [];
+        try {
+          const stored = localStorage.getItem(ENV_STORAGE_KEY);
+          if (stored) {
+            envVars = JSON.parse(stored);
+          }
+        } catch (error) {
+          console.error('Failed to read env vars from localStorage:', error);
+        }
+
+        // Convert to object format
+        const env = envVars.reduce(
+          (acc, { key, value }) => {
+            acc[key] = value;
+            return acc;
+          },
+          {} as Record<string, string>
+        );
+
+        console.log('🔑 [useChat] Reading env vars from localStorage:', Object.keys(env));
+
+        return {
+          conversationId,
+          env,
+        };
+      },
     }),
   });