diff --git a/sqlmesh/core/config/loader.py b/sqlmesh/core/config/loader.py
index 7f1789a677..c381252fb9 100644
--- a/sqlmesh/core/config/loader.py
+++ b/sqlmesh/core/config/loader.py
@@ -184,8 +184,14 @@ def load_config_from_python_module(
     module_path: Path,
     config_name: str = "config",
 ) -> C:
-    with sys_path(module_path.parent):
-        config_module = import_python_file(module_path, module_path.parent)
+    try:
+        with sys_path(module_path.parent):
+            config_module = import_python_file(module_path, module_path.parent)
+    except Exception as e:
+        raise ConfigError(
+            f"Failed to load config file: {e}",
+            location=module_path,
+        )
 
     try:
         config_obj = getattr(config_module, config_name)
diff --git a/vscode/extension/tests/broken_project.spec.ts b/vscode/extension/tests/broken_project.spec.ts
index f2af3e13e0..c6be73e403 100644
--- a/vscode/extension/tests/broken_project.spec.ts
+++ b/vscode/extension/tests/broken_project.spec.ts
@@ -395,9 +395,46 @@ test.describe('Bad config.py/config.yaml file issues', () => {
     await runCommand(page, 'View: Focus Problems')
 
     // Assert that the error is present in the problems view
-    await page
+    const errorElement = page
       .getByText('Config needs to be a valid object of type')
       .first()
-      .isVisible({ timeout: 5_000 })
+    await expect(errorElement).toBeVisible({ timeout: 5000 })
+  })
+
+  test('sushi example, bad config.py', async ({ page, sharedCodeServer }) => {
+    const tempDir = await fs.mkdtemp(
+      path.join(os.tmpdir(), 'vscode-test-tcloud-'),
+    )
+    await fs.copy(SUSHI_SOURCE_PATH, tempDir)
+    await createPythonInterpreterSettingsSpecifier(tempDir)
+
+    const configPyPath = path.join(tempDir, 'config.py')
+    // Write an invalid Python to config.py
+    await fs.writeFile(configPyPath, 'invalid_python_code = [1, 2, 3')
+
+    await page.goto(
+      `http://127.0.1:${sharedCodeServer.codeServerPort}/?folder=${tempDir}`,
+    )
+    await page.waitForLoadState('networkidle')
+
+    // Open customers.sql model
+    await page
+      .getByRole('treeitem', { name: 'models', exact: true })
+      .locator('a')
+      .click()
+    await page
+      .getByRole('treeitem', { name: 'customers.sql', exact: true })
+      .locator('a')
+      .click()
+
+    // Expect the error to appear
+    await page.waitForSelector('text=Error creating context')
+
+    // Open the problems view
+    await runCommand(page, 'View: Focus Problems')
+
+    // Assert that the error is present in the problems view
+    const errorElement = page.getByText('Failed to load config file:').first()
+    await expect(errorElement).toBeVisible({ timeout: 5000 })
   })
 })