diff --git a/actions/setup/js/markdown_code_region_balancer.cjs b/actions/setup/js/markdown_code_region_balancer.cjs
index a732c971fc9..995efbca872 100644
--- a/actions/setup/js/markdown_code_region_balancer.cjs
+++ b/actions/setup/js/markdown_code_region_balancer.cjs
@@ -104,12 +104,26 @@ function balanceCodeRegions(markdown) {
   }
 
   // Third pass: Match fences, detecting and fixing nested patterns
-  // Key insight: Find ALL valid closers for each opener. If there are multiple,
-  // use the LAST one and increase fence length so middle ones become invalid.
+  // Strategy:
+  // 1. Process fences in order
+  // 2. For each opener, find ALL potential closers at the same indentation
+  // 3. If there are multiple closers, the user intended the LAST one, so escape middle ones
+  // 4. Skip closers inside already-paired blocks
+  // 5. Respect indentation: only match fences at the same indentation level
   const fenceLengthAdjustments = new Map(); // lineIndex -> new length
   const processed = new Set();
   const unclosedFences = [];
-  const pairedBlocks = []; // Track paired blocks
+  const pairedBlocks = []; // Track paired blocks with their line ranges
+
+  // Helper function to check if a line is inside any paired block
+  const isInsideBlock = lineIndex => {
+    for (const block of pairedBlocks) {
+      if (lineIndex > block.start && lineIndex < block.end) {
+        return true;
+      }
+    }
+    return false;
+  };
 
   let i = 0;
   while (i < fences.length) {
@@ -121,28 +135,17 @@ function balanceCodeRegions(markdown) {
     const openFence = fences[i];
     processed.add(i);
 
-    // Look for ALL valid closers
-    const allMatchingClosers = []; // Track all potential closers
+    // Find ALL potential closers at same indentation that are NOT inside existing blocks
+    const potentialClosers = [];
+    const openIndentLength = openFence.indent.length;
 
     for (let j = i + 1; j < fences.length; j++) {
       if (processed.has(j)) continue;
 
       const fence = fences[j];
 
-      // If this fence has a language specifier and matches our char, it's a nested block
-      if (fence.language !== "" && fence.char === openFence.char) {
-        // Process this nested block with language
-        processed.add(j);
-
-        // Find its closer
-        for (let k = j + 1; k < fences.length; k++) {
-          if (processed.has(k)) continue;
-          const nestedCloser = fences[k];
-          if (nestedCloser.char === fence.char && nestedCloser.length >= fence.length && nestedCloser.language === "") {
-            processed.add(k);
-            break;
-          }
-        }
+      // Skip if this fence is inside a paired block
+      if (isInsideBlock(fence.lineIndex)) {
         continue;
       }
 
@@ -150,13 +153,18 @@ function balanceCodeRegions(markdown) {
       const canClose = fence.char === openFence.char && fence.length >= openFence.length && fence.language === "";
 
       if (canClose) {
-        allMatchingClosers.push({ index: j, length: fence.length });
+        const fenceIndentLength = fence.indent.length;
+
+        // Only consider fences at the SAME indentation as potential closers
+        if (fenceIndentLength === openIndentLength) {
+          potentialClosers.push({ index: j, length: fence.length });
+        }
       }
     }
 
-    if (allMatchingClosers.length > 0) {
-      // Use the LAST valid closer
-      const closerIndex = allMatchingClosers[allMatchingClosers.length - 1].index;
+    if (potentialClosers.length > 0) {
+      // Use the LAST potential closer (farthest from opener)
+      const closerIndex = potentialClosers[potentialClosers.length - 1].index;
       processed.add(closerIndex);
 
       pairedBlocks.push({
@@ -166,17 +174,17 @@ function balanceCodeRegions(markdown) {
         closeIndex: closerIndex,
       });
 
-      // If there are multiple closers, we have nested fences
-      if (allMatchingClosers.length > 1) {
+      // If there are multiple potential closers, we have nested fences that need escaping
+      if (potentialClosers.length > 1) {
         // Increase fence length so middle closers can no longer close
-        const maxLength = Math.max(...allMatchingClosers.map(c => c.length), openFence.length);
+        const maxLength = Math.max(...potentialClosers.map(c => c.length), openFence.length);
         const newLength = maxLength + 1;
         fenceLengthAdjustments.set(fences[i].lineIndex, newLength);
         fenceLengthAdjustments.set(fences[closerIndex].lineIndex, newLength);
 
-        // Mark middle closers as processed
-        for (let k = 0; k < allMatchingClosers.length - 1; k++) {
-          processed.add(allMatchingClosers[k].index);
+        // Mark middle closers as processed (they're now treated as content)
+        for (let k = 0; k < potentialClosers.length - 1; k++) {
+          processed.add(potentialClosers[k].index);
         }
       }
 
@@ -185,16 +193,8 @@ function balanceCodeRegions(markdown) {
     } else {
       // No closer found - check if this fence is inside a paired block
       const fenceLine = fences[i].lineIndex;
-      let isInsideBlock = false;
-
-      for (const block of pairedBlocks) {
-        if (fenceLine > block.start && fenceLine < block.end) {
-          isInsideBlock = true;
-          break;
-        }
-      }
 
-      if (!isInsideBlock) {
+      if (!isInsideBlock(fenceLine)) {
         unclosedFences.push(openFence);
       }
 
diff --git a/actions/setup/js/markdown_code_region_balancer.test.cjs b/actions/setup/js/markdown_code_region_balancer.test.cjs
index c6594f63c74..e171997e20b 100644
--- a/actions/setup/js/markdown_code_region_balancer.test.cjs
+++ b/actions/setup/js/markdown_code_region_balancer.test.cjs
@@ -222,13 +222,9 @@ Example:
   nested
   \`\`\`
 \`\`\``;
-        const expected = `\`\`\`\`markdown
-Example:
-  \`\`\`
-  nested
-  \`\`\`
-\`\`\`\``;
-        expect(balancer.balanceCodeRegions(input)).toBe(expected);
+        // Indented fences inside a markdown block are treated as content (examples), not active fences
+        // No escaping needed
+        expect(balancer.balanceCodeRegions(input)).toBe(input);
       });
 
       it("should preserve indentation when escaping", () => {
@@ -237,12 +233,9 @@ Example:
     indented nested
     \`\`\`
 \`\`\``;
-        const expected = `\`\`\`\`markdown
-    \`\`\`
-    indented nested
-    \`\`\`
-\`\`\`\``;
-        expect(balancer.balanceCodeRegions(input)).toBe(expected);
+        // Indented fences inside a markdown block are treated as content (examples), not active fences
+        // No escaping needed
+        expect(balancer.balanceCodeRegions(input)).toBe(input);
       });
     });
 
@@ -389,6 +382,42 @@ More text
         // No changes expected - the javascript block is separate from the markdown block
         expect(balancer.balanceCodeRegions(input)).toBe(input);
       });
+
+      it("should not modify markdown block containing indented bare fences as examples (issue #11081)", () => {
+        // This reproduces the issue from GitHub issue #11081
+        // A markdown code block containing examples of code blocks with indentation
+        const input = `**Add to AGENTS.md:**
+
+\`\`\`markdown
+## Safe Outputs Schema Synchronization
+
+**CRITICAL: When modifying safe output templates or handlers:**
+
+1. **Update all related files:**
+   - Source: \`actions/setup/js/handle_*.cjs\`
+   - Schema: \`pkg/workflow/js/safe_outputs_tools.json\`
+
+2. **Schema sync checklist:**
+   \`\`\`
+   # After modifying any handle_*.cjs file:
+   cd actions/setup/js
+   npm test  # MUST pass
+   \`\`\`
+
+3. **Common pitfalls:**
+   - ❌ Changing issue titles without updating schema
+   
+4. **Pattern to follow:**
+   \`\`\`
+   # Find all related definitions
+   grep -r "your-new-text" actions/setup/js/
+   \`\`\`
+\`\`\`
+
+## Historical Context`;
+        // No changes expected - the indented bare ``` inside the markdown block are examples
+        expect(balancer.balanceCodeRegions(input)).toBe(input);
+      });
     });
 
     describe("edge cases", () => {