diff --git a/app/src/App/CLI/Purs.purs b/app/src/App/CLI/Purs.purs
index bece27e6..b32d1801 100644
--- a/app/src/App/CLI/Purs.purs
+++ b/app/src/App/CLI/Purs.purs
@@ -191,10 +191,17 @@ callCompiler compilerArgs = do
 compilerRaceConditionError :: String
 compilerRaceConditionError = "Unexpected end of JSON input"
 
+-- | We keep heap exhaustion classified as an unknown error rather than expanding
+-- | CompilerFailure because only niche recovery paths need to distinguish it.
+isCompilerHeapExhaustion :: CompilerFailure -> Boolean
+isCompilerHeapExhaustion = case _ of
+  UnknownError err -> String.contains (String.Pattern "purs: Heap exhausted") err
+  _ -> false
+
 -- | Check if a compiler failure is due to the known race condition bug.
 isCompilerRaceCondition :: CompilerFailure -> Boolean
-isCompilerRaceCondition = case _ of
-  UnknownError err -> String.contains (String.Pattern compilerRaceConditionError) err
+isCompilerRaceCondition failure = case failure of
+  UnknownError err -> not (isCompilerHeapExhaustion failure) && String.contains (String.Pattern compilerRaceConditionError) err
   _ -> false
 
 -- | Compile PureScript source files with automatic retry for transient errors.
diff --git a/app/src/App/Effect/PackageSets.purs b/app/src/App/Effect/PackageSets.purs
index c02ba3a1..a9cdd485 100644
--- a/app/src/App/Effect/PackageSets.purs
+++ b/app/src/App/Effect/PackageSets.purs
@@ -263,12 +263,22 @@ handle env = case _ of
   compileInstalledPackages :: Version -> Run _ (Either CompilerFailure String)
   compileInstalledPackages compiler = do
     Log.debug "Compiling installed packages..."
-    Purs.compile
-      { globs: [ Path.concat [ Path.basename packagesWorkDir, "**/*.purs" ] ]
-      , profile: Purs.PackageSetBuild
-      , version: Just compiler
-      , cwd: Just env.workdir
-      }
+    let
+      compile = Purs.compile
+        { globs: [ Path.concat [ Path.basename packagesWorkDir, "**/*.purs" ] ]
+        , profile: Purs.PackageSetBuild
+        , version: Just compiler
+        , cwd: Just env.workdir
+        }
+    result <- compile
+    case result of
+      Left err | Purs.isCompilerHeapExhaustion err -> do
+        Log.warn "Compiler heap exhausted; clearing package-set output and retrying once."
+        -- Clear the output directory to avoid an incremental build, but leave
+        -- output-backup alone so it remains available for rollback.
+        FS.Extra.remove outputWorkDir
+        compile
+      _ -> pure result
 
   attemptChanges :: Version -> PackageSet -> ChangeSet -> Run _ (Either CompilerFailure PackageSet)
   attemptChanges compiler (PackageSet set) changes = do
diff --git a/app/test/App/CLI/Purs.purs b/app/test/App/CLI/Purs.purs
index 988846a6..f3af024f 100644
--- a/app/test/App/CLI/Purs.purs
+++ b/app/test/App/CLI/Purs.purs
@@ -54,6 +54,15 @@ spec = do
       let err = UnknownError "Some prefix text\nJSON: Unexpected end of JSON input\nSome suffix"
       Purs.isCompilerRaceCondition err `Assertions.shouldEqual` true
 
+    Spec.it "Does not detect race condition for heap exhaustion with empty JSON output" do
+      let
+        err = UnknownError $ String.joinWith "\n"
+          [ "purs: Heap exhausted;"
+          , "purs: Current maximum heap size is 3221225472 bytes (3072 MB)."
+          , "JSON: Unexpected end of JSON input"
+          ]
+      Purs.isCompilerRaceCondition err `Assertions.shouldEqual` false
+
     Spec.it "Does not detect race condition for normal UnknownError" do
       let err = UnknownError "Some other compiler error message"
       Purs.isCompilerRaceCondition err `Assertions.shouldEqual` false