diff --git a/app/Http/Controllers/ChatController.php b/app/Http/Controllers/ChatController.php
index 336fc5c2..37f94afc 100644
--- a/app/Http/Controllers/ChatController.php
+++ b/app/Http/Controllers/ChatController.php
@@ -176,9 +176,7 @@ public function store(Request $request)
 
         // Check for abusive / prohibited language
         if (ChatProfanityFilter::hasProfanity($content)) {
-            return response()->json([
-                'message' => 'Your message contains inappropriate or prohibited language. If you try again, you may be temporarily banned from chat.',
-            ], 422);
+            $content = '[Message hidden for inappropriate language]';
         }
 
         // Prevent duplicate message sent twice in a streak by the same user
diff --git a/app/Services/ChatProfanityFilter.php b/app/Services/ChatProfanityFilter.php
index f93d054a..948b5dc1 100644
--- a/app/Services/ChatProfanityFilter.php
+++ b/app/Services/ChatProfanityFilter.php
@@ -24,23 +24,30 @@ public static function hasProfanity(string $text): bool
 
         $normalized = self::normalize($text);
 
+        // 1. Remove punctuation separators within words (e.g. "f.u.c.k", "s_e_x", "a-s-s")
+        $strippedPunctuation = preg_replace('/(?<=\p{L})[._\-*~]+(?=\p{L})/u', '', $normalized);
+
+        // 2. Collapse spaced-out single letters (e.g. "f u c k" -> "fuck", "a s s" -> "ass")
+        $collapsedSpaces = preg_replace_callback('/\b(?:\p{L}\s+){2,}\p{L}\b/u', function ($m) {
+            return preg_replace('/\s+/u', '', $m[0]);
+        }, $strippedPunctuation);
+
+        $variants = [$text, $normalized, $strippedPunctuation, $collapsedSpaces];
+
         foreach ($bannedWords as $word) {
             $word = trim(mb_strtolower($word));
             if ($word === '') {
                 continue;
             }
 
-            // Exact word boundary matching or normalized substring matching
             $escaped = preg_quote($word, '/');
-            if (preg_match("/\b{$escaped}\b/ui", $text) || preg_match("/\b{$escaped}\b/ui", $normalized)) {
-                return true;
-            }
+            // Unicode-safe word boundary pattern to prevent substring false-positives (e.g. "ass" in "assalamualaikum")
+            $pattern = '/(?<=^|[^\p{L}\p{N}])'.$escaped.'(?=[^\p{L}\p{N}]|$)/ui';
 
-            // Compact match without spaces or special symbols (e.g. f.u.c.k or f_u_c_k)
-            $compactText = preg_replace('/[^\p{L}\p{N}]/u', '', $normalized);
-            $compactWord = preg_replace('/[^\p{L}\p{N}]/u', '', $word);
-            if ($compactWord !== '' && str_contains($compactText, $compactWord)) {
-                return true;
+            foreach ($variants as $variant) {
+                if (preg_match($pattern, $variant)) {
+                    return true;
+                }
             }
         }
 
diff --git a/tests/Feature/ChatAutoBanTest.php b/tests/Feature/ChatAutoBanTest.php
index d72deffe..90404341 100644
--- a/tests/Feature/ChatAutoBanTest.php
+++ b/tests/Feature/ChatAutoBanTest.php
@@ -2,6 +2,7 @@
 
 use App\Models\AppSetting;
 use App\Models\User;
+use App\Services\ChatProfanityFilter;
 use Spatie\Permission\Models\Permission;
 use Spatie\Permission\Models\Role;
 
@@ -110,3 +111,47 @@
 
     expect($targetUser->fresh()->isChatBanned())->toBeFalse();
 });
+
+test('profanity filter allows legitimate words containing substrings while blocking actual banned words and obfuscations', function () {
+    AppSetting::set('global_chat_profanity_filter_enabled', true, 'boolean');
+    AppSetting::set('global_chat_banned_words', 'badword, toxic, spammer');
+
+    // Legitimate words containing substrings must NOT be blocked
+    expect(ChatProfanityFilter::hasProfanity('assalamualaikum'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('assalamualaikum brothers'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('walaikumsalam'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('class assignment'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('compass assistant'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('classic physics'))->toBeFalse();
+    expect(ChatProfanityFilter::hasProfanity('password passage'))->toBeFalse();
+
+    // Actual banned words and obfuscations MUST be blocked
+    expect(ChatProfanityFilter::hasProfanity('you are badword'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('you are b.a.d.w.o.r.d'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('you are b a d w o r d'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('you are b@dw0rd'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('t.o.x.i.c user'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('t o x i c user'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('t_o_x_i_c'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('t0x1c'))->toBeTrue();
+    expect(ChatProfanityFilter::hasProfanity('tooooxic'))->toBeTrue();
+});
+
+test('chat messages replace profanity with system notice instead of blocking the user', function () {
+    AppSetting::set('global_chat_enabled', true, 'boolean');
+    AppSetting::set('global_chat_audience', 'all');
+    AppSetting::set('global_chat_profanity_filter_enabled', true, 'boolean');
+    AppSetting::set('global_chat_banned_words', 'badword, toxic');
+
+    $user = User::factory()->create(['username' => 'chat_sender']);
+
+    $response = $this->actingAs($user)->postJson(route('chat.messages.store'), [
+        'content' => 'What is this badword',
+    ]);
+
+    $response->assertStatus(201);
+    $this->assertDatabaseHas('chat_messages', [
+        'user_id' => $user->id,
+        'content' => '[Message hidden for inappropriate language]',
+    ]);
+});