diff --git a/packages/cli/src/setup-embeddings.test.ts b/packages/cli/src/setup-embeddings.test.ts
index 2aaca295..2fd6c541 100644
--- a/packages/cli/src/setup-embeddings.test.ts
+++ b/packages/cli/src/setup-embeddings.test.ts
@@ -54,9 +54,6 @@ function managedDaemon(
     baseUrl,
     stdoutLog: logs.stdoutLog ?? '/tmp/ktx-daemon.stdout.log',
     stderrLog: logs.stderrLog ?? '/tmp/ktx-daemon.stderr.log',
-    env: {
-      KTX_MANAGED_SENTENCE_TRANSFORMERS_BASE_URL: baseUrl,
-    },
   };
 }
 
diff --git a/packages/cli/src/setup-runtime.test.ts b/packages/cli/src/setup-runtime.test.ts
index e18fe279..32342702 100644
--- a/packages/cli/src/setup-runtime.test.ts
+++ b/packages/cli/src/setup-runtime.test.ts
@@ -102,7 +102,6 @@ describe('runKtxSetupRuntimeStep', () => {
       baseUrl: 'http://127.0.0.1:61234',
       stdoutLog: join(tempDir, '.ktx', 'runtime', 'daemon.stdout.log'),
       stderrLog: join(tempDir, '.ktx', 'runtime', 'daemon.stderr.log'),
-      env: { KTX_MANAGED_SENTENCE_TRANSFORMERS_BASE_URL: 'http://127.0.0.1:61234' },
     }));
     const config: KtxProjectConfig = {
       ...buildDefaultKtxProjectConfig(),
diff --git a/scripts/local-embeddings-runtime-smoke.mjs b/scripts/local-embeddings-runtime-smoke.mjs
index 6b1787be..c6d98178 100644
--- a/scripts/local-embeddings-runtime-smoke.mjs
+++ b/scripts/local-embeddings-runtime-smoke.mjs
@@ -357,10 +357,13 @@ export async function runLocalEmbeddingsRuntimeSmoke(options = {}) {
     requireOutput(commands[5].label, setup, /Embeddings ready: yes \(all-MiniLM-L6-v2\)/);
 
     const config = await readFile(join(projectDir, 'ktx.yaml'), 'utf8');
-    if (!config.includes('base_url: managed:local-embeddings')) {
-      throw new Error(`ktx.yaml did not contain managed local embeddings marker:\n${config}`);
+    if (!/backend:\s*sentence-transformers/.test(config)) {
+      throw new Error(`ktx.yaml did not declare sentence-transformers embedding backend:\n${config}`);
     }
-    process.stdout.write('KTX setup persisted managed local embeddings marker\n');
+    if (/base_url:/.test(config)) {
+      throw new Error(`ktx.yaml should omit base_url for managed local embeddings:\n${config}`);
+    }
+    process.stdout.write('KTX setup persisted managed local embeddings (no base_url)\n');
 
     const stop = await run(commands[6].command, commands[6].args, {
       cwd: installDir,