diff --git a/Guda.toc b/Guda.toc
index a04aeda..3a8a0a2 100644
--- a/Guda.toc
+++ b/Guda.toc
@@ -45,6 +45,7 @@ UI\ItemButton.lua
 UI\ItemButtonPerformanceClassicAPI.lua
 UI\FrameHelpers.lua
 UI\BagFrame.lua
+UI\BagHighlightFlyoutFix.lua
 UI\BankFrame.lua
 UI\MailboxFrame.lua
 UI\QuestItemBar.lua
diff --git a/UI/BagHighlightFlyoutFix.lua b/UI/BagHighlightFlyoutFix.lua
new file mode 100644
index 0000000..70d5528
--- /dev/null
+++ b/UI/BagHighlightFlyoutFix.lua
@@ -0,0 +1,65 @@
+-- Guda ClassicAPI bag hover highlight fix
+-- Keep bag ownership highlights in sync with the compact bag flyout state.
+-- Lua 5.0 compatible.
+
+local addon = Guda
+if not addon then return end
+if type(Guda_BagFrame_HighlightBagButton) ~= "function" then return end
+if type(Guda_BagFrame_ClearBagButtonHighlight) ~= "function" then return end
+
+local OriginalHighlightBagButton = Guda_BagFrame_HighlightBagButton
+local OriginalClearBagButtonHighlight = Guda_BagFrame_ClearBagButtonHighlight
+
+local function IsBaglineHidden()
+    if addon.Modules and addon.Modules.DB and addon.Modules.DB.GetSetting then
+        return addon.Modules.DB:GetSetting("hideBagline") and true or false
+    end
+    return false
+end
+
+local function GetVisibleBagFlyout()
+    local flyout = getglobal("Guda_BagFlyout")
+    if flyout and flyout:IsShown() then
+        return flyout
+    end
+end
+
+function Guda_BagFrame_HighlightBagButton(bagID)
+    -- Full bagline: preserve Guda's existing behavior exactly.
+    if not IsBaglineHidden() then
+        return OriginalHighlightBagButton(bagID)
+    end
+
+    local numericBagID = tonumber(bagID)
+
+    -- Compact mode: the bag-0 toolbar button represents the flyout itself.
+    -- Do not light it merely because an item belongs to the backpack while
+    -- that flyout is closed.
+    if numericBagID and numericBagID >= 0 and numericBagID <= 4 then
+        if not GetVisibleBagFlyout() then return end
+
+        local button
+        if numericBagID == 0 then
+            button = getglobal("Guda_BagFrame_Toolbar_BagSlot0")
+        else
+            button = getglobal("Guda_BagFlyout_Slot" .. numericBagID)
+        end
+
+        if button then button:LockHighlight() end
+        return
+    end
+
+    -- Keyring/special bag buttons are not part of the compact 1-4 flyout.
+    OriginalHighlightBagButton(bagID)
+end
+
+function Guda_BagFrame_ClearBagButtonHighlight()
+    OriginalClearBagButtonHighlight()
+
+    -- The original clear helper only knows about toolbar bag buttons.
+    -- Also clear any compact-flyout slot we may have highlighted above.
+    for bagID = 1, 4 do
+        local button = getglobal("Guda_BagFlyout_Slot" .. bagID)
+        if button then button:UnlockHighlight() end
+    end
+end