diff --git a/playground/nitro.config.ts b/playground/nitro.config.ts
index 2a9dd131e6..a763adbd67 100644
--- a/playground/nitro.config.ts
+++ b/playground/nitro.config.ts
@@ -1 +1 @@
-export default defineNitroConfig({});
+export default defineNitroConfig({});
\ No newline at end of file
diff --git a/src/runtime/config.ts b/src/runtime/config.ts
index 7bc504e018..a03ce12130 100644
--- a/src/runtime/config.ts
+++ b/src/runtime/config.ts
@@ -1,19 +1,20 @@
-import destr from "destr";
-import { snakeCase } from "scule";
 import { klona } from "klona";
 import { H3Event } from "h3";
+import { type EnvOptions, applyEnv } from "./utils.env";
 import { appConfig as _inlineAppConfig } from "#internal/nitro/virtual/app-config";
 import type { NitroRuntimeConfig } from "nitropack";
 
 // Static runtime config inlined by nitro build
 const _inlineRuntimeConfig = process.env.RUNTIME_CONFIG as any;
-const ENV_PREFIX = "NITRO_";
-const ENV_PREFIX_ALT =
-  _inlineRuntimeConfig.nitro.envPrefix ?? process.env.NITRO_ENV_PREFIX ?? "_";
+const envOptions: EnvOptions = {
+  prefix: "NITRO_",
+  altPrefix:
+    _inlineRuntimeConfig.nitro.envPrefix ?? process.env.NITRO_ENV_PREFIX ?? "_",
+};
 
 // Runtime config
 const _sharedRuntimeConfig = _deepFreeze(
-  _applyEnv(klona(_inlineRuntimeConfig))
+  applyEnv(klona(_inlineRuntimeConfig), envOptions)
 );
 export function useRuntimeConfig<
   T extends NitroRuntimeConfig = NitroRuntimeConfig,
@@ -28,7 +29,7 @@ export function useRuntimeConfig<
   }
   // Prepare runtime config for event context
   const runtimeConfig = klona(_inlineRuntimeConfig) as T;
-  _applyEnv(runtimeConfig);
+  applyEnv(runtimeConfig, envOptions);
   event.context.nitro.runtimeConfig = runtimeConfig;
   return runtimeConfig;
 }
@@ -52,33 +53,6 @@ export function useAppConfig(event?: H3Event) {
 
 // --- Utils ---
 
-function _getEnv(key: string) {
-  const envKey = snakeCase(key).toUpperCase();
-  return destr(
-    process.env[ENV_PREFIX + envKey] ?? process.env[ENV_PREFIX_ALT + envKey]
-  );
-}
-
-function _isObject(input: unknown) {
-  return typeof input === "object" && !Array.isArray(input);
-}
-
-function _applyEnv(obj: object, parentKey = "") {
-  for (const key in obj) {
-    const subKey = parentKey ? `${parentKey}_${key}` : key;
-    const envValue = _getEnv(subKey);
-    if (_isObject(obj[key])) {
-      if (_isObject(envValue)) {
-        obj[key] = { ...obj[key], ...(envValue as any) };
-      }
-      _applyEnv(obj[key], subKey);
-    } else {
-      obj[key] = envValue ?? obj[key];
-    }
-  }
-  return obj;
-}
-
 function _deepFreeze(object: Record<string, any>) {
   const propNames = Object.getOwnPropertyNames(object);
   for (const name of propNames) {
diff --git a/src/runtime/utils.env.ts b/src/runtime/utils.env.ts
new file mode 100644
index 0000000000..62578fa2c1
--- /dev/null
+++ b/src/runtime/utils.env.ts
@@ -0,0 +1,45 @@
+import destr from "destr";
+import { snakeCase } from "scule";
+
+export type EnvOptions = {
+  prefix?: string;
+  altPrefix?: string;
+};
+
+export function getEnv(key: string, opts: EnvOptions) {
+  const envKey = snakeCase(key).toUpperCase();
+  return destr(
+    process.env[opts.prefix + envKey] ?? process.env[opts.altPrefix + envKey]
+  );
+}
+
+function _isObject(input: unknown) {
+  return typeof input === "object" && !Array.isArray(input);
+}
+
+export function applyEnv(obj: object, opts: EnvOptions, parentKey = "") {
+  for (const key in obj) {
+    const subKey = parentKey ? `${parentKey}_${key}` : key;
+    const envValue = getEnv(subKey, opts);
+    if (_isObject(obj[key])) {
+      // Same as before
+      if (_isObject(envValue)) {
+        obj[key] = { ...obj[key], ...(envValue as object) };
+        applyEnv(obj[key], opts, subKey);
+      }
+      // If envValue is undefined
+      // Then proceed to nested properties
+      else if (envValue === undefined) {
+        applyEnv(obj[key], opts, subKey);
+      }
+      // If envValue is a primitive other than undefined
+      // Then set objValue and ignore the nested properties
+      else {
+        obj[key] = envValue ?? obj[key];
+      }
+    } else {
+      obj[key] = envValue ?? obj[key];
+    }
+  }
+  return obj;
+}
diff --git a/test/unit/utils.env.test.ts b/test/unit/utils.env.test.ts
new file mode 100644
index 0000000000..fae5305749
--- /dev/null
+++ b/test/unit/utils.env.test.ts
@@ -0,0 +1,41 @@
+import { describe, it, expect } from "vitest";
+import { applyEnv } from "../../src/runtime/utils.env";
+
+describe("env utils", () => {
+  describe("applyEnv", () => {
+    const tests = [
+      {
+        config: { a: 1, b: 2 },
+        env: { NITRO_A: "123" },
+        expected: { a: 123, b: 2 },
+      },
+      {
+        config: { feature: { options: { optionA: true, optionB: true } } },
+        env: { NITRO_FEATURE: false },
+        expected: { feature: false },
+      },
+      {
+        config: { feature: { options: { optionA: true, optionB: true } } },
+        env: { NITRO_FEATURE_OPTIONS: false },
+        expected: { feature: { options: false } },
+      },
+    ];
+    for (const test of tests) {
+      it(`Config: ${JSON.stringify(test.config)} Env: { ${Object.entries(
+        test.env
+      )
+        .map(([key, value]) => `${key}=${JSON.stringify(value)}`)
+        .join(" ")} }`, () => {
+        for (const key in test.env) {
+          process.env[key] = test.env[key];
+        }
+        expect(applyEnv(test.config, { prefix: "NITRO_" })).toEqual(
+          test.expected
+        );
+        for (const key in test.env) {
+          delete process.env[key];
+        }
+      });
+    }
+  });
+});