diff --git a/internal/auditlogging/auditlogging.go b/internal/auditlogging/auditlogging.go
index c4b47aec..feac599d 100644
--- a/internal/auditlogging/auditlogging.go
+++ b/internal/auditlogging/auditlogging.go
@@ -147,9 +147,14 @@ func ApplyAuditLogConfig(shoot *gardener.Shoot, auditConfigFromFile map[string]m
 	}
 
 	changedExt, err := configureExtension(shoot, tenant)
+
+	if err != nil {
+		return false, err
+	}
+
 	changedSec := configureSecret(shoot, tenant)
 
-	return changedExt || changedSec, err
+	return changedExt || changedSec, nil
 }
 
 func configureExtension(shoot *gardener.Shoot, config AuditLogData) (changed bool, err error) {
diff --git a/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog.go b/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog.go
index d03cb5d6..04f3a43c 100644
--- a/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog.go
+++ b/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog.go
@@ -2,6 +2,7 @@ package fsm
 
 import (
 	"context"
+	k8serrors "k8s.io/apimachinery/pkg/api/errors"
 
 	imv1 "github.com/kyma-project/infrastructure-manager/api/v1"
 	"github.com/kyma-project/infrastructure-manager/internal/auditlogging"
@@ -14,7 +15,7 @@ func sFnConfigureAuditLog(ctx context.Context, m *fsm, s *systemState) (stateFn,
 
 	wasAuditLogEnabled, err := m.AuditLogging.Enable(ctx, s.shoot)
 
-	if wasAuditLogEnabled {
+	if wasAuditLogEnabled && err == nil {
 		m.log.Info("Audit Log configured for shoot: " + s.shoot.Name)
 		s.instance.UpdateStatePending(
 			imv1.ConditionTypeAuditLogConfigured,
@@ -27,6 +28,16 @@ func sFnConfigureAuditLog(ctx context.Context, m *fsm, s *systemState) (stateFn,
 	}
 
 	if err != nil { //nolint:nestif
+		if k8serrors.IsConflict(err) {
+			m.log.Error(err, "Conflict while updating Shoot object after applying Audit Log configuration, retrying")
+			s.instance.UpdateStatePending(
+				imv1.ConditionTypeAuditLogConfigured,
+				imv1.ConditionReasonAuditLogError,
+				"True",
+				err.Error(),
+			)
+			return updateStatusAndRequeue()
+		}
 		errorMessage := err.Error()
 		if errors.Is(err, auditlogging.ErrMissingMapping) {
 			if m.RCCfg.AuditLogMandatory {
diff --git a/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog_test.go b/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog_test.go
index 925a93f2..b8bad745 100644
--- a/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog_test.go
+++ b/internal/controller/runtime/fsm/runtime_fsm_configure_auditlog_test.go
@@ -3,6 +3,7 @@ package fsm
 import (
 	"context"
 	"github.com/kyma-project/infrastructure-manager/internal/auditlogging"
+	k8serrors "k8s.io/apimachinery/pkg/api/errors"
 	"testing"
 
 	gardener "github.com/gardener/gardener/pkg/apis/core/v1beta1"
@@ -236,6 +237,43 @@ func TestAuditLogState(t *testing.T) {
 		assert.Equal(t, v1.RuntimeStateReady, string(systemState.instance.Status.State))
 		assert.Equal(t, expectedRuntimeConditions, systemState.instance.Status.Conditions)
 	})
+
+	t.Run("Should requeue in case of Kubernetes object conflict error during update of Shoot object and set status on Runtime CR", func(t *testing.T) {
+		// given
+		ctx := context.Background()
+		auditLog := &mocks.AuditLogging{}
+		shoot := shootForTest()
+		instance := runtimeForTest()
+		systemState := &systemState{
+			instance: instance,
+			shoot:    shoot,
+		}
+		expectedRuntimeConditions := []metav1.Condition{
+			{
+				Type:    string(v1.ConditionTypeAuditLogConfigured),
+				Status:  "True",
+				Reason:  string(v1.ConditionReasonAuditLogError),
+				Message: k8serrors.NewConflict(gardener.Resource("shoots"), shoot.Name, errors.New("k8s conflict on update error")).Error(),
+			},
+		}
+
+		fsm := &fsm{AuditLogging: auditLog}
+		fsm.RCCfg.AuditLogMandatory = true
+
+		auditLog.On("Enable", ctx, shoot).Return(false, k8serrors.NewConflict(gardener.Resource("shoots"), shoot.Name, errors.New("k8s conflict on update error"))).Once()
+
+		// when
+		stateFn, _, _ := sFnConfigureAuditLog(ctx, fsm, systemState)
+
+		// set the time to its zero value for comparison purposes
+		systemState.instance.Status.Conditions[0].LastTransitionTime = metav1.Time{}
+
+		// then
+		auditLog.AssertExpectations(t)
+		require.Contains(t, stateFn.name(), "sFnUpdateStatus")
+		assert.Equal(t, v1.RuntimeStatePending, string(systemState.instance.Status.State))
+		assert.Equal(t, expectedRuntimeConditions, systemState.instance.Status.Conditions)
+	})
 }
 
 func shootForTest() *gardener.Shoot {
diff --git a/internal/controller/runtime/fsm/runtime_fsm_waiting_for_shoot_reconcile.go b/internal/controller/runtime/fsm/runtime_fsm_waiting_for_shoot_reconcile.go
index ce700502..a4a8fb5f 100644
--- a/internal/controller/runtime/fsm/runtime_fsm_waiting_for_shoot_reconcile.go
+++ b/internal/controller/runtime/fsm/runtime_fsm_waiting_for_shoot_reconcile.go
@@ -49,7 +49,7 @@ func sFnWaitForShootReconcile(_ context.Context, m *fsm, s *systemState) (stateF
 			imv1.ConditionTypeRuntimeProvisioned,
 			imv1.ConditionReasonAuditLogConfigured,
 			"Runtime processing completed successfully",
-			sFnConfigureAuditLog)
+			sFnApplyClusterRoleBindings)
 	}
 
 	m.log.Info("Update did not processed, exiting with no retry")