diff --git a/homeassistant/components/powerfox_local/config_flow.py b/homeassistant/components/powerfox_local/config_flow.py
index 94e67a691213..bcfb71908fde 100644
--- a/homeassistant/components/powerfox_local/config_flow.py
+++ b/homeassistant/components/powerfox_local/config_flow.py
@@ -2,6 +2,7 @@
 
 from __future__ import annotations
 
+from collections.abc import Mapping
 from typing import Any
 
 from powerfox import PowerfoxAuthenticationError, PowerfoxConnectionError, PowerfoxLocal
@@ -21,6 +22,12 @@ STEP_USER_DATA_SCHEMA = vol.Schema(
     }
 )
 
+STEP_REAUTH_DATA_SCHEMA = vol.Schema(
+    {
+        vol.Required(CONF_API_KEY): str,
+    }
+)
+
 
 class PowerfoxLocalConfigFlow(ConfigFlow, domain=DOMAIN):
     """Handle a config flow for Powerfox Local."""
@@ -33,7 +40,7 @@ class PowerfoxLocalConfigFlow(ConfigFlow, domain=DOMAIN):
         self, user_input: dict[str, Any] | None = None
     ) -> ConfigFlowResult:
         """Handle the user step."""
-        errors: dict[str, str] = {}
+        errors = {}
 
         if user_input is not None:
             self._host = user_input[CONF_HOST]
@@ -84,6 +91,45 @@ class PowerfoxLocalConfigFlow(ConfigFlow, domain=DOMAIN):
         """Handle a confirmation flow for zeroconf discovery."""
         return self._async_create_entry()
 
+    async def async_step_reauth(
+        self, entry_data: Mapping[str, Any]
+    ) -> ConfigFlowResult:
+        """Handle re-authentication flow."""
+        self._host = entry_data[CONF_HOST]
+        return await self.async_step_reauth_confirm()
+
+    async def async_step_reauth_confirm(
+        self, user_input: dict[str, Any] | None = None
+    ) -> ConfigFlowResult:
+        """Handle re-authentication confirmation."""
+        errors = {}
+
+        if user_input is not None:
+            self._api_key = user_input[CONF_API_KEY]
+            reauth_entry = self._get_reauth_entry()
+            client = PowerfoxLocal(
+                host=reauth_entry.data[CONF_HOST],
+                api_key=user_input[CONF_API_KEY],
+                session=async_get_clientsession(self.hass),
+            )
+            try:
+                await client.value()
+            except PowerfoxAuthenticationError:
+                errors["base"] = "invalid_auth"
+            except PowerfoxConnectionError:
+                errors["base"] = "cannot_connect"
+            else:
+                return self.async_update_reload_and_abort(
+                    reauth_entry,
+                    data_updates=user_input,
+                )
+
+        return self.async_show_form(
+            step_id="reauth_confirm",
+            data_schema=STEP_REAUTH_DATA_SCHEMA,
+            errors=errors,
+        )
+
     def _async_create_entry(self) -> ConfigFlowResult:
         """Create a config entry."""
         return self.async_create_entry(
diff --git a/homeassistant/components/powerfox_local/coordinator.py b/homeassistant/components/powerfox_local/coordinator.py
index 62c7481c4187..813cd815436c 100644
--- a/homeassistant/components/powerfox_local/coordinator.py
+++ b/homeassistant/components/powerfox_local/coordinator.py
@@ -2,11 +2,17 @@
 
 from __future__ import annotations
 
-from powerfox import LocalResponse, PowerfoxConnectionError, PowerfoxLocal
+from powerfox import (
+    LocalResponse,
+    PowerfoxAuthenticationError,
+    PowerfoxConnectionError,
+    PowerfoxLocal,
+)
 
 from homeassistant.config_entries import ConfigEntry
 from homeassistant.const import CONF_API_KEY, CONF_HOST
 from homeassistant.core import HomeAssistant
+from homeassistant.exceptions import ConfigEntryAuthFailed
 from homeassistant.helpers.aiohttp_client import async_get_clientsession
 from homeassistant.helpers.update_coordinator import DataUpdateCoordinator, UpdateFailed
 
@@ -40,6 +46,12 @@ class PowerfoxLocalDataUpdateCoordinator(DataUpdateCoordinator[LocalResponse]):
         """Fetch data from the local poweropti."""
         try:
             return await self.client.value()
+        except PowerfoxAuthenticationError as err:
+            raise ConfigEntryAuthFailed(
+                translation_domain=DOMAIN,
+                translation_key="invalid_auth",
+                translation_placeholders={"error": str(err)},
+            ) from err
         except PowerfoxConnectionError as err:
             raise UpdateFailed(
                 translation_domain=DOMAIN,
diff --git a/homeassistant/components/powerfox_local/quality_scale.yaml b/homeassistant/components/powerfox_local/quality_scale.yaml
index 14aef3642918..ce0faf0e7878 100644
--- a/homeassistant/components/powerfox_local/quality_scale.yaml
+++ b/homeassistant/components/powerfox_local/quality_scale.yaml
@@ -43,7 +43,7 @@ rules:
   integration-owner: done
   log-when-unavailable: done
   parallel-updates: done
-  reauthentication-flow: todo
+  reauthentication-flow: done
   test-coverage: done
 
   # Gold
diff --git a/homeassistant/components/powerfox_local/strings.json b/homeassistant/components/powerfox_local/strings.json
index db6c06b55241..cb19b5c0028c 100644
--- a/homeassistant/components/powerfox_local/strings.json
+++ b/homeassistant/components/powerfox_local/strings.json
@@ -2,13 +2,24 @@
   "config": {
     "abort": {
       "already_configured": "[%key:common::config_flow::abort::already_configured_device%]",
-      "cannot_connect": "[%key:common::config_flow::error::cannot_connect%]"
+      "cannot_connect": "[%key:common::config_flow::error::cannot_connect%]",
+      "reauth_successful": "[%key:common::config_flow::abort::reauth_successful%]"
     },
     "error": {
       "cannot_connect": "[%key:common::config_flow::error::cannot_connect%]",
       "invalid_auth": "[%key:common::config_flow::error::invalid_auth%]"
     },
     "step": {
+      "reauth_confirm": {
+        "data": {
+          "api_key": "[%key:common::config_flow::data::api_key%]"
+        },
+        "data_description": {
+          "api_key": "[%key:component::powerfox_local::config::step::user::data_description::api_key%]"
+        },
+        "description": "The API key for your Poweropti device is no longer valid.",
+        "title": "[%key:common::config_flow::title::reauth%]"
+      },
       "user": {
         "data": {
           "api_key": "[%key:common::config_flow::data::api_key%]",
@@ -43,6 +54,9 @@
     }
   },
   "exceptions": {
+    "invalid_auth": {
+      "message": "Error while authenticating with the device: {error}"
+    },
     "update_failed": {
       "message": "Error while updating the device: {error}"
     }
diff --git a/tests/components/powerfox_local/test_config_flow.py b/tests/components/powerfox_local/test_config_flow.py
index 65de963b71e1..d055b68e73e7 100644
--- a/tests/components/powerfox_local/test_config_flow.py
+++ b/tests/components/powerfox_local/test_config_flow.py
@@ -184,3 +184,70 @@ async def test_user_flow_exceptions(
         user_input={CONF_HOST: MOCK_HOST, CONF_API_KEY: MOCK_API_KEY},
     )
     assert result.get("type") is FlowResultType.CREATE_ENTRY
+
+
+async def test_step_reauth(
+    hass: HomeAssistant,
+    mock_powerfox_local_client: AsyncMock,
+    mock_config_entry: MockConfigEntry,
+    mock_setup_entry: AsyncMock,
+) -> None:
+    """Test re-authentication flow."""
+    mock_config_entry.add_to_hass(hass)
+    result = await mock_config_entry.start_reauth_flow(hass)
+
+    assert result.get("type") is FlowResultType.FORM
+    assert result.get("step_id") == "reauth_confirm"
+
+    result = await hass.config_entries.flow.async_configure(
+        result["flow_id"],
+        user_input={CONF_API_KEY: "new-api-key"},
+    )
+
+    assert result.get("type") is FlowResultType.ABORT
+    assert result.get("reason") == "reauth_successful"
+
+    assert mock_config_entry.data[CONF_API_KEY] == "new-api-key"
+
+
+@pytest.mark.parametrize(
+    ("exception", "error"),
+    [
+        (PowerfoxConnectionError, "cannot_connect"),
+        (PowerfoxAuthenticationError, "invalid_auth"),
+    ],
+)
+async def test_step_reauth_exceptions(
+    hass: HomeAssistant,
+    mock_powerfox_local_client: AsyncMock,
+    mock_config_entry: MockConfigEntry,
+    mock_setup_entry: AsyncMock,
+    exception: Exception,
+    error: str,
+) -> None:
+    """Test exceptions during re-authentication flow."""
+    mock_powerfox_local_client.value.side_effect = exception
+    mock_config_entry.add_to_hass(hass)
+    result = await mock_config_entry.start_reauth_flow(hass)
+
+    assert result.get("type") is FlowResultType.FORM
+    assert result.get("step_id") == "reauth_confirm"
+
+    result = await hass.config_entries.flow.async_configure(
+        result["flow_id"],
+        user_input={CONF_API_KEY: "new-api-key"},
+    )
+    assert result.get("type") is FlowResultType.FORM
+    assert result.get("errors") == {"base": error}
+
+    # Recover from error
+    mock_powerfox_local_client.value.side_effect = None
+
+    result = await hass.config_entries.flow.async_configure(
+        result["flow_id"],
+        user_input={CONF_API_KEY: "new-api-key"},
+    )
+    assert result.get("type") is FlowResultType.ABORT
+    assert result.get("reason") == "reauth_successful"
+
+    assert mock_config_entry.data[CONF_API_KEY] == "new-api-key"
diff --git a/tests/components/powerfox_local/test_init.py b/tests/components/powerfox_local/test_init.py
index e2d71ef7f79e..f84afe66407a 100644
--- a/tests/components/powerfox_local/test_init.py
+++ b/tests/components/powerfox_local/test_init.py
@@ -4,7 +4,7 @@ from __future__ import annotations
 
 from unittest.mock import AsyncMock
 
-from powerfox import PowerfoxConnectionError
+from powerfox import PowerfoxAuthenticationError, PowerfoxConnectionError
 
 from homeassistant.config_entries import ConfigEntryState
 from homeassistant.core import HomeAssistant
@@ -43,3 +43,20 @@ async def test_config_entry_not_ready(
     await hass.async_block_till_done()
 
     assert mock_config_entry.state is ConfigEntryState.SETUP_RETRY
+
+
+async def test_setup_entry_exception(
+    hass: HomeAssistant,
+    mock_powerfox_local_client: AsyncMock,
+    mock_config_entry: MockConfigEntry,
+) -> None:
+    """Test ConfigEntryNotReady when API raises an exception during entry setup."""
+    mock_config_entry.add_to_hass(hass)
+    mock_powerfox_local_client.value.side_effect = PowerfoxAuthenticationError
+
+    await hass.config_entries.async_setup(mock_config_entry.entry_id)
+    assert mock_config_entry.state is ConfigEntryState.SETUP_ERROR
+
+    flows = hass.config_entries.flow.async_progress()
+    assert len(flows) == 1
+    assert flows[0]["step_id"] == "reauth_confirm"