diff --git a/.changeset/preserve-scoped-catalog-capabilities.md b/.changeset/preserve-scoped-catalog-capabilities.md
new file mode 100644
index 000000000..462da7605
--- /dev/null
+++ b/.changeset/preserve-scoped-catalog-capabilities.md
@@ -0,0 +1,5 @@
+---
+'@openchoreo/backstage-plugin-permission-backend-module-openchoreo-policy': patch
+---
+
+Preserve scoped capability paths for catalog entity visibility checks (Fixes #763)
diff --git a/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.test.ts b/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.test.ts
new file mode 100644
index 000000000..2a491327c
--- /dev/null
+++ b/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.test.ts
@@ -0,0 +1,181 @@
+import { mockServices } from '@backstage/backend-test-utils';
+import { AuthorizeResult } from '@backstage/plugin-permission-common';
+import { catalogEntityReadPermission } from '@backstage/plugin-catalog-common/alpha';
+import { Entity } from '@backstage/catalog-model';
+import { CHOREO_ANNOTATIONS } from '@openchoreo/backstage-plugin-common';
+import { PolicyQueryUser } from '@backstage/plugin-permission-node';
+import { OpenChoreoPermissionPolicy } from './OpenChoreoPermissionPolicy';
+import { matchesCatalogEntityCapability } from '../rules';
+import { AuthzProfileService } from '../services';
+
+function makeEntity(
+  kind: string,
+  annotations: Record<string, string | undefined> = {},
+): Entity {
+  const cleanAnnotations: Record<string, string> = {};
+  for (const [k, v] of Object.entries(annotations)) {
+    if (v !== undefined) {
+      cleanAnnotations[k] = v;
+    }
+  }
+  return {
+    apiVersion: 'backstage.io/v1alpha1',
+    kind,
+    metadata: {
+      name: 'test-entity',
+      annotations: cleanAnnotations,
+    },
+  };
+}
+
+describe('OpenChoreoPermissionPolicy - Catalog Permission Scoped Capabilities (Issue #763)', () => {
+  const mockLogger = mockServices.logger.mock();
+
+  it('preserves scoped capability paths (e.g. with constraints) in kindCapabilities for System/Project entities', async () => {
+    const mockAuthzService = {
+      getCapabilitiesForUser: jest.fn().mockResolvedValue({
+        capabilities: {
+          'project:view': {
+            allowed: [
+              {
+                path: 'ns/acme/project/project-a',
+                constraints: {
+                  expressions: ['resource.environment == "prod"'],
+                },
+              },
+            ],
+            denied: [],
+          },
+        },
+      }),
+    } as unknown as AuthzProfileService;
+
+    const policy = new OpenChoreoPermissionPolicy({
+      authzService: mockAuthzService,
+      logger: mockLogger,
+    });
+
+    const user: PolicyQueryUser = {
+      info: {
+        userEntityRef: 'user:default/scoped-user',
+      },
+    } as unknown as PolicyQueryUser;
+
+    const decision = await policy.handle(
+      { permission: catalogEntityReadPermission },
+      user,
+    );
+
+    expect(decision.result).toBe(AuthorizeResult.CONDITIONAL);
+    if (decision.result !== AuthorizeResult.CONDITIONAL) {
+      throw new Error('Expected CONDITIONAL decision');
+    }
+
+    const ruleCondition = decision.conditions as any;
+    expect(ruleCondition).toBeDefined();
+    expect(ruleCondition.rule).toBe('MATCHES_CATALOG_ENTITY_CAPABILITY');
+
+    const kindCapabilities = JSON.parse(
+      ruleCondition.params.kindCapabilitiesJson,
+    );
+
+    // Assert that kindCapabilities.system.allowedPaths contains the scoped project path
+    expect(kindCapabilities.system).toBeDefined();
+    expect(kindCapabilities.system.allowedPaths).toEqual([
+      'ns/acme/project/project-a',
+    ]);
+
+    // Test apply against a matching System entity (OpenChoreo Project)
+    const matchingEntity = makeEntity('System', {
+      [CHOREO_ANNOTATIONS.NAMESPACE]: 'acme',
+      [CHOREO_ANNOTATIONS.PROJECT_ID]: 'project-a',
+    });
+
+    const matchesMatching = matchesCatalogEntityCapability.apply(
+      matchingEntity,
+      ruleCondition.params,
+    );
+    expect(matchesMatching).toBe(true);
+
+    // Test apply against a non-matching System entity (out-of-scope project)
+    const nonMatchingEntity = makeEntity('System', {
+      [CHOREO_ANNOTATIONS.NAMESPACE]: 'acme',
+      [CHOREO_ANNOTATIONS.PROJECT_ID]: 'project-b',
+    });
+
+    const matchesNonMatching = matchesCatalogEntityCapability.apply(
+      nonMatchingEntity,
+      ruleCondition.params,
+    );
+    expect(matchesNonMatching).toBe(false);
+  });
+
+  it('allows plain unconstrained scoped capability paths', async () => {
+    const mockAuthzService = {
+      getCapabilitiesForUser: jest.fn().mockResolvedValue({
+        capabilities: {
+          'project:view': {
+            allowed: [
+              {
+                path: 'ns/acme/project/project-a',
+              },
+            ],
+            denied: [],
+          },
+        },
+      }),
+    } as unknown as AuthzProfileService;
+
+    const policy = new OpenChoreoPermissionPolicy({
+      authzService: mockAuthzService,
+      logger: mockLogger,
+    });
+
+    const user: PolicyQueryUser = {
+      info: {
+        userEntityRef: 'user:default/scoped-user',
+      },
+    } as unknown as PolicyQueryUser;
+
+    const decision = await policy.handle(
+      { permission: catalogEntityReadPermission },
+      user,
+    );
+
+    expect(decision.result).toBe(AuthorizeResult.CONDITIONAL);
+    if (decision.result !== AuthorizeResult.CONDITIONAL) {
+      throw new Error('Expected CONDITIONAL decision');
+    }
+
+    const ruleCondition = decision.conditions as any;
+    const kindCapabilities = JSON.parse(
+      ruleCondition.params.kindCapabilitiesJson,
+    );
+
+    expect(kindCapabilities.system.allowedPaths).toEqual([
+      'ns/acme/project/project-a',
+    ]);
+
+    const matchingEntity = makeEntity('System', {
+      [CHOREO_ANNOTATIONS.NAMESPACE]: 'acme',
+      [CHOREO_ANNOTATIONS.PROJECT_ID]: 'project-a',
+    });
+    expect(
+      matchesCatalogEntityCapability.apply(
+        matchingEntity,
+        ruleCondition.params,
+      ),
+    ).toBe(true);
+
+    const nonMatchingEntity = makeEntity('System', {
+      [CHOREO_ANNOTATIONS.NAMESPACE]: 'acme',
+      [CHOREO_ANNOTATIONS.PROJECT_ID]: 'project-b',
+    });
+    expect(
+      matchesCatalogEntityCapability.apply(
+        nonMatchingEntity,
+        ruleCondition.params,
+      ),
+    ).toBe(false);
+  });
+});
diff --git a/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.ts b/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.ts
index 418784b5f..ba934aff7 100644
--- a/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.ts
+++ b/plugins/permission-backend-module-openchoreo-policy/src/policy/OpenChoreoPermissionPolicy.ts
@@ -302,11 +302,13 @@ export class OpenChoreoPermissionPolicy implements PermissionPolicy {
           action,
         );
 
-        // Catalog visibility has no environment context, so we cannot satisfy
-        // ABAC CEL expressions here. Drop constrained entries — entity-level
-        // actions are gated separately by matchesCapability + env-aware hooks.
-        const allowedPaths = unconstrainedPaths(actionCapability?.allowed);
-        const deniedPaths = unconstrainedPaths(actionCapability?.denied);
+        // Catalog visibility controls which entities appear in the catalog by
+        // matching their hierarchical scope (namespace, project, component).
+        // Scoped capability paths are preserved and passed to matchesCatalogEntityCapability;
+        // fine-grained environment/resource-action authorization is enforced downstream
+        // by matchesCapability and env-aware hooks.
+        const allowedPaths = extractPaths(actionCapability?.allowed);
+        const deniedPaths = extractPaths(actionCapability?.denied);
 
         kindCapabilities[kindLower] = {
           action,