diff --git a/RELEASE.md b/RELEASE.md
index 6a82c79b57..e2f762ff73 100644
--- a/RELEASE.md
+++ b/RELEASE.md
@@ -11,7 +11,11 @@
 # Upcoming Release 0.18.9
 
 ## Major features and improvements
+* `kedro run --params` now updates interpolated parameters correctly when using `OmegaConfigLoader`.
+
 ## Bug fixes and other changes
+* `OmegaConfigLoader` will return a `dict` instead of `DictConfig`.
+
 ## Breaking changes to the API
 * `kedro package` does not produce `.egg` files anymore, and now relies exclusively on `.whl` files.
 ## Upcoming deprecations for Kedro 0.19.0
diff --git a/kedro/config/abstract_config.py b/kedro/config/abstract_config.py
index 70a463fc15..776ec6c836 100644
--- a/kedro/config/abstract_config.py
+++ b/kedro/config/abstract_config.py
@@ -24,7 +24,7 @@ def __init__(
         super().__init__()
         self.conf_source = conf_source
         self.env = env
-        self.runtime_params = runtime_params
+        self.runtime_params = runtime_params or {}
 
 
 class BadConfigException(Exception):
diff --git a/kedro/config/omegaconf_config.py b/kedro/config/omegaconf_config.py
index d04ea35b3b..285ea1f02d 100644
--- a/kedro/config/omegaconf_config.py
+++ b/kedro/config/omegaconf_config.py
@@ -168,7 +168,7 @@ def __getitem__(self, key) -> dict[str, Any]:
         else:
             base_path = str(Path(self._fs.ls("", detail=False)[-1]) / self.base_env)
         base_config = self.load_and_merge_dir_config(
-            base_path, patterns, read_environment_variables
+            base_path, patterns, key, read_environment_variables
         )
         config = base_config
 
@@ -179,7 +179,7 @@ def __getitem__(self, key) -> dict[str, Any]:
         else:
             env_path = str(Path(self._fs.ls("", detail=False)[-1]) / run_env)
         env_config = self.load_and_merge_dir_config(
-            env_path, patterns, read_environment_variables
+            env_path, patterns, key, read_environment_variables
         )
 
         # Destructively merge the two env dirs. The chosen env will override base.
@@ -211,6 +211,7 @@ def load_and_merge_dir_config(
         self,
         conf_path: str,
         patterns: Iterable[str],
+        key: str,
         read_environment_variables: bool | None = False,
     ) -> dict[str, Any]:
         """Recursively load and merge all configuration files in a directory using OmegaConf,
@@ -219,6 +220,7 @@ def load_and_merge_dir_config(
         Args:
             conf_path: Path to configuration directory.
             patterns: List of glob patterns to match the filenames against.
+            key: Key of the configuration type to fetch.
             read_environment_variables: Whether to resolve environment variables.
 
         Raises:
@@ -275,9 +277,13 @@ def load_and_merge_dir_config(
 
         if not aggregate_config:
             return {}
-        if len(aggregate_config) == 1:
-            return list(aggregate_config)[0]
-        return dict(OmegaConf.merge(*aggregate_config))
+
+        if key == "parameters":
+            # Merge with runtime parameters only for "parameters"
+            return OmegaConf.to_container(
+                OmegaConf.merge(*aggregate_config, self.runtime_params), resolve=True
+            )
+        return OmegaConf.to_container(OmegaConf.merge(*aggregate_config), resolve=True)
 
     def _is_valid_config_path(self, path):
         """Check if given path is a file path and file type is yaml or json."""
diff --git a/kedro/framework/session/session.py b/kedro/framework/session/session.py
index bd2b062da5..448dd0612d 100644
--- a/kedro/framework/session/session.py
+++ b/kedro/framework/session/session.py
@@ -201,7 +201,7 @@ def create(  # pylint: disable=too-many-arguments
     def _get_logging_config(self) -> dict[str, Any]:
         logging_config = self._get_config_loader()["logging"]
         if isinstance(logging_config, omegaconf.DictConfig):
-            logging_config = OmegaConf.to_container(logging_config)
+            logging_config = OmegaConf.to_container(logging_config)  # pragma: no cover
         # turn relative paths in logging config into absolute path
         # before initialising loggers
         logging_config = _convert_paths_to_absolute_posix(
diff --git a/tests/config/test_omegaconf_config.py b/tests/config/test_omegaconf_config.py
index a93b284853..bc80c08711 100644
--- a/tests/config/test_omegaconf_config.py
+++ b/tests/config/test_omegaconf_config.py
@@ -70,14 +70,30 @@ def local_config(tmp_path):
 
 @pytest.fixture
 def create_config_dir(tmp_path, base_config, local_config):
-    proj_catalog = tmp_path / _BASE_ENV / "catalog.yml"
+    base_catalog = tmp_path / _BASE_ENV / "catalog.yml"
+    base_logging = tmp_path / _BASE_ENV / "logging.yml"
+    base_spark = tmp_path / _BASE_ENV / "spark.yml"
+    base_catalog = tmp_path / _BASE_ENV / "catalog.yml"
+
     local_catalog = tmp_path / _DEFAULT_RUN_ENV / "catalog.yml"
+
     parameters = tmp_path / _BASE_ENV / "parameters.json"
-    project_parameters = {"param1": 1, "param2": 2}
+    base_parameters = {"param1": 1, "param2": 2, "interpolated_param": "${test_env}"}
+    base_global_parameters = {"test_env": "base"}
+    local_global_parameters = {"test_env": "local"}
 
-    _write_yaml(proj_catalog, base_config)
+    _write_yaml(base_catalog, base_config)
     _write_yaml(local_catalog, local_config)
-    _write_json(parameters, project_parameters)
+
+    # Empty Config
+    _write_yaml(base_logging, {"version": 1})
+    _write_yaml(base_spark, {"dummy": 1})
+
+    _write_json(parameters, base_parameters)
+    _write_json(tmp_path / _BASE_ENV / "parameters_global.json", base_global_parameters)
+    _write_json(
+        tmp_path / _DEFAULT_RUN_ENV / "parameters_global.json", local_global_parameters
+    )
 
 
 @pytest.fixture
@@ -531,3 +547,43 @@ def zipdir(path, ziph):
         conf = OmegaConfigLoader(conf_source=f"{tmp_path}/Python.zip")
         catalog = conf["catalog"]
         assert catalog["trains"]["type"] == "MemoryDataSet"
+
+    @use_config_dir
+    def test_variable_interpolation_with_correct_env(self, tmp_path):
+        """Make sure the parameters is interpolated with the correct environment"""
+        conf = OmegaConfigLoader(str(tmp_path))
+        params = conf["parameters"]
+        # Making sure it is not override by local/parameters_global.yml
+        assert params["interpolated_param"] == "base"
+
+    @use_config_dir
+    def test_runtime_params_override_interpolated_value(self, tmp_path):
+        """Make sure interpolated value is updated correctly with runtime_params"""
+        conf = OmegaConfigLoader(str(tmp_path), runtime_params={"test_env": "dummy"})
+        params = conf["parameters"]
+        assert params["interpolated_param"] == "dummy"
+
+    @use_config_dir
+    @use_credentials_env_variable_yml
+    def test_runtime_params_not_propogate_non_parameters_config(self, tmp_path):
+        """Make sure `catalog`, `credentials`, `logging` or any config other than
+        `parameters` are not updated by `runtime_params`."""
+        # https://github.com/kedro-org/kedro/pull/2467
+        key = "test_env"
+        runtime_params = {key: "dummy"}
+        conf = OmegaConfigLoader(
+            str(tmp_path),
+            config_patterns={"spark": ["spark*", "spark*/**", "**/spark*"]},
+            runtime_params=runtime_params,
+        )
+        parameters = conf["parameters"]
+        catalog = conf["catalog"]
+        credentials = conf["credentials"]
+        logging = conf["logging"]
+        spark = conf["spark"]
+
+        assert key in parameters
+        assert key not in catalog
+        assert key not in credentials
+        assert key not in logging
+        assert key not in spark