diff --git a/src/transformers/training_args.py b/src/transformers/training_args.py
index 09cb48cd7f74..bd128b56f117 100644
--- a/src/transformers/training_args.py
+++ b/src/transformers/training_args.py
@@ -2705,7 +2705,7 @@ def _process_fsdp_args(self):
 
         if self.fsdp_config is not None and isinstance(self.fsdp_config, dict):
             for k in list(self.fsdp_config.keys()):
-                if k.startswith("fsdp_"):
+                if k.startswith("fsdp_") and k != "fsdp_version":
                     v = self.fsdp_config.pop(k)
                     self.fsdp_config[k[5:]] = v
 
@@ -2749,6 +2749,7 @@ def _process_fsdp_args(self):
         # accelerate integration for FSDP
         fsdp_plugin_args = None
         if len(self.fsdp) > 0 and not self.fsdp_config["xla"]:
+            from accelerate.utils import FullyShardedDataParallelPlugin
             from accelerate.utils.constants import (
                 FSDP_AUTO_WRAP_POLICY,
                 FSDP_SHARDING_STRATEGY,
@@ -2757,7 +2758,10 @@ def _process_fsdp_args(self):
             fsdp_plugin_args = {}
             for fsdp_option in self.fsdp:
                 if fsdp_option.upper() in FSDP_SHARDING_STRATEGY:
-                    fsdp_plugin_args["sharding_strategy"] = fsdp_option
+                    # Set deprecated sharding_strategy from CLI (plugin maps to reshard_after_forward)
+                    # Skip if config has explicit reshard_after_forward (prioritize config)
+                    if "reshard_after_forward" not in self.fsdp_config:
+                        fsdp_plugin_args["sharding_strategy"] = fsdp_option
                 elif fsdp_option == FSDPOption.OFFLOAD:
                     fsdp_plugin_args["cpu_offload"] = True
                 elif fsdp_option == FSDPOption.AUTO_WRAP:
@@ -2769,7 +2773,8 @@ def _process_fsdp_args(self):
                         fsdp_plugin_args["transformer_cls_names_to_wrap"] = ",".join(
                             self.fsdp_config["transformer_layer_cls_to_wrap"]
                         )
-            fsdp_version = int(self.fsdp_config.get("version", 1))
+
+            fsdp_version = int(self.fsdp_config.get("fsdp_version", 1))
             fsdp_plugin_args["fsdp_version"] = fsdp_version
             prefetch_policy = self.fsdp_config.get("backward_prefetch", "NO_PREFETCH")
             if fsdp_version == 2:
@@ -2801,6 +2806,12 @@ def _process_fsdp_args(self):
 
             fsdp_plugin_args["sync_module_states"] = str_to_bool(sync_module_states)
 
+            # Pull allowed parameters from fsdp_config
+            ALLOWED_FSDP_PARAMS = {f.name for f in fields(FullyShardedDataParallelPlugin)}
+            for key in ALLOWED_FSDP_PARAMS:
+                if key in self.fsdp_config and key not in fsdp_plugin_args:
+                    fsdp_plugin_args[key] = self.fsdp_config[key]
+
         return fsdp_plugin_args
 
 
diff --git a/tests/fsdp/test_fsdp.py b/tests/fsdp/test_fsdp.py
index 7f0cb0482bdb..9c7bd744505e 100644
--- a/tests/fsdp/test_fsdp.py
+++ b/tests/fsdp/test_fsdp.py
@@ -211,6 +211,37 @@ def test_fsdp_config(self, sharding_strategy, dtype):
             for k, v in trainer.args.fsdp_config.items():
                 self.assertEqual(v, self.fsdp_config[k])
 
+    def test_fsdp_version_2_config(self):
+        output_dir = self.get_auto_remove_tmp_dir()
+        kwargs = {
+            "output_dir": output_dir,
+            "train_len": 128,
+            "save_steps": 5,
+            "learning_rate": 0.1,
+            "fsdp": True,
+            "fsdp_config": {
+                "fsdp_version": 2,
+                "reshard_after_forward": True,
+                "auto_wrap_policy": "transformer_based_wrap",
+                "transformer_cls_names_to_wrap": ["BertLayer"],
+                "state_dict_type": "FULL_STATE_DICT",
+                "activation_checkpointing": True,
+                "cpu_offload": True,
+                "limit_all_gathers": True,
+            },
+        }
+        with mockenv_context(**self.dist_env_1_gpu):
+            trainer = get_regression_trainer(**kwargs)
+            plugin_args = trainer.args._process_fsdp_args()
+            self.assertEqual(plugin_args["fsdp_version"], 2)
+            self.assertTrue(plugin_args["reshard_after_forward"])
+            self.assertEqual(plugin_args["auto_wrap_policy"], "transformer_based_wrap")
+            self.assertListEqual(plugin_args["transformer_cls_names_to_wrap"], ["BertLayer"])
+            self.assertEqual(plugin_args["state_dict_type"], "FULL_STATE_DICT")
+            self.assertTrue(plugin_args["activation_checkpointing"])
+            self.assertTrue(plugin_args["cpu_offload"])
+            self.assertTrue(plugin_args["limit_all_gathers"])
+
     @parameterized.expand(params, name_func=_parameterized_custom_name_func)
     @require_torch_multi_accelerator
     @run_first