diff --git a/config/audit_events/types/self_hosted_model_feature_changed.yml b/config/audit_events/types/self_hosted_model_feature_changed.yml
new file mode 100644
index 0000000000000000000000000000000000000000..e6d76a0f564c598085010600126d6145fdea28a3
--- /dev/null
+++ b/config/audit_events/types/self_hosted_model_feature_changed.yml
@@ -0,0 +1,9 @@
+name: self_hosted_model_feature_changed
+description: A self-hosted model feature had its configuration changed
+introduced_by_issue: https://gitlab.com/gitlab-org/gitlab/-/issues/463215
+introduced_by_mr: https://gitlab.com/gitlab-org/gitlab/-/merge_requests/165489
+feature_category: self-hosted_models
+milestone: '17.4'
+saved_to_database: true
+scope: [Project]
+streamed: true
diff --git a/doc/user/compliance/audit_event_types.md b/doc/user/compliance/audit_event_types.md
index c34c4aeabe3d82e2b9728a50013655640d04b293..2975ebb088a6415c7bd34c8eef44560ce3f83b21 100644
--- a/doc/user/compliance/audit_event_types.md
+++ b/doc/user/compliance/audit_event_types.md
@@ -453,6 +453,7 @@ Audit event types belong to the following product categories.
 
 | Name | Description | Saved to database | Streamed | Introduced in | Scope |
 |:------------|:------------|:------------------|:---------|:--------------|:--------------|
+| [`self_hosted_model_feature_changed`](https://gitlab.com/gitlab-org/gitlab/-/merge_requests/165489) | A self-hosted model feature had its configuration changed | **{check-circle}** Yes | **{check-circle}** Yes | GitLab [17.4](https://gitlab.com/gitlab-org/gitlab/-/issues/463215) | Project |
 | [`self_hosted_model_terms_accepted`](https://gitlab.com/gitlab-org/gitlab/-/merge_requests/165480) | Terms for usage of self-hosted models were accepted | **{check-circle}** Yes | **{check-circle}** Yes | GitLab [17.4](https://gitlab.com/gitlab-org/gitlab/-/issues/477999) | Instance, User |
 
 ### Source code management
diff --git a/ee/app/controllers/admin/ai/feature_settings_controller.rb b/ee/app/controllers/admin/ai/feature_settings_controller.rb
index 4dd63f132a75e335ab75f91b541e26e05f2a56b1..cff1a9d96fe4e7bb27d85f447f923096d44a5bc5 100644
--- a/ee/app/controllers/admin/ai/feature_settings_controller.rb
+++ b/ee/app/controllers/admin/ai/feature_settings_controller.rb
@@ -41,15 +41,17 @@ def create
       def update
         @feature_setting = ::Ai::FeatureSetting.find(params[:id])
 
-        if @feature_setting.update(feature_settings_params)
+        result = ::Ai::FeatureSettings::UpdateService.new(
+          @feature_setting, current_user, feature_settings_params
+        ).execute
+
+        if result.success?
           redirect_to admin_ai_feature_settings_url, notice: _("Feature settings updated successfully")
         else
           render :edit
         end
       end
 
-      private
-
       def feature_settings_params
         params.require(:feature_setting).permit(
           :feature, :provider, :ai_self_hosted_model_id
diff --git a/ee/app/services/ai/feature_settings/update_service.rb b/ee/app/services/ai/feature_settings/update_service.rb
new file mode 100644
index 0000000000000000000000000000000000000000..5d31b2916f181a2c61a785c0fb19ad5e0500f4a6
--- /dev/null
+++ b/ee/app/services/ai/feature_settings/update_service.rb
@@ -0,0 +1,39 @@
+# frozen_string_literal: true
+
+module Ai
+  module FeatureSettings
+    class UpdateService
+      def initialize(feature_setting, user, params)
+        @feature_setting = feature_setting
+        @user = user
+        @params = params
+      end
+
+      def execute
+        if feature_setting.update(@params)
+          audit_event
+
+          ServiceResponse.success(payload: feature_setting)
+        else
+          ServiceResponse.error(payload: feature_setting, message: feature_setting.errors.full_messages.join(", "))
+        end
+      end
+
+      private
+
+      attr_accessor :feature_setting, :user
+
+      def audit_event
+        audit_context = {
+          name: 'self_hosted_model_feature_changed',
+          author: user,
+          scope: user,
+          target: feature_setting,
+          message: "Feature #{feature_setting.feature} changed to #{feature_setting.provider_title}"
+        }
+
+        ::Gitlab::Audit::Auditor.audit(audit_context)
+      end
+    end
+  end
+end
diff --git a/ee/spec/services/ai/feature_settings/update_service_spec.rb b/ee/spec/services/ai/feature_settings/update_service_spec.rb
new file mode 100644
index 0000000000000000000000000000000000000000..8af16f81c7a4f5587f28eb7c5a97e809d9d3f7f3
--- /dev/null
+++ b/ee/spec/services/ai/feature_settings/update_service_spec.rb
@@ -0,0 +1,44 @@
+# frozen_string_literal: true
+
+require 'spec_helper'
+
+RSpec.describe Ai::FeatureSettings::UpdateService, feature_category: :"self-hosted_models" do
+  let_it_be(:user) { create(:user) }
+  let_it_be(:self_hosted_model) { create(:ai_self_hosted_model) }
+  let(:feature_setting) { create(:ai_feature_setting, provider: :vendored, self_hosted_model: nil) }
+
+  let(:params) { { provider: :self_hosted, self_hosted_model: self_hosted_model } }
+
+  subject(:service_result) { described_class.new(feature_setting, user, params).execute }
+
+  describe '#execute' do
+    let(:audit_event) do
+      {
+        name: 'self_hosted_model_feature_changed',
+        author: user,
+        scope: user,
+        target: feature_setting,
+        message: "Feature code_generations changed to Self-hosted model (mistral-7b-ollama-api)"
+      }
+    end
+
+    it 'returns a success response' do
+      expect(Gitlab::Audit::Auditor).to receive(:audit).with(audit_event)
+      expect { service_result }.to change { feature_setting.reload.provider }.to("self_hosted")
+
+      expect(service_result).to be_success
+      expect(service_result.payload).to eq(feature_setting)
+    end
+
+    context 'when update fails' do
+      let(:params) { { provider: '' } }
+
+      it 'returns an error response' do
+        expect(Gitlab::Audit::Auditor).not_to receive(:audit)
+
+        expect(service_result).to be_error
+        expect(service_result.message).to include("Provider can't be blank")
+      end
+    end
+  end
+end