diff --git a/abis/invoice.json b/abis/invoice.json
index fadcef7..5928d00 100644
--- a/abis/invoice.json
+++ b/abis/invoice.json
@@ -13,7 +13,8 @@
     "unpause",
     "set_grace_window",
     "get_grace_window",
-    "release_escrow"
+    "release_escrow",
+    "approve_refund"
   ],
   "events": [
     "invoice_created",
@@ -23,6 +24,7 @@
     "invoice_refund_req",
     "escrow_released",
     "contract_paused",
-    "contract_unpaused"
+    "contract_unpaused",
+    "refund_approved"
   ]
 }
diff --git a/contracts/invoice/src/events.rs b/contracts/invoice/src/events.rs
index cae32c8..0b1904c 100644
--- a/contracts/invoice/src/events.rs
+++ b/contracts/invoice/src/events.rs
@@ -54,6 +54,11 @@ pub fn invoice_refund_requested(env: &Env, id: u64, invoice: &Invoice) {
     );
 }
 
+pub fn refund_approved(env: &Env, id: u64, invoice: &Invoice) {
+    env.events()
+        .publish((Symbol::new(env, "refund_approved"), id), invoice.clone());
+}
+
 pub fn escrow_released(env: &Env, id: u64, invoice: &Invoice) {
     env.events()
         .publish((Symbol::new(env, "escrow_released"), id), invoice.clone());
diff --git a/contracts/invoice/src/invoice.rs b/contracts/invoice/src/invoice.rs
index 415dc02..7fe96fc 100644
--- a/contracts/invoice/src/invoice.rs
+++ b/contracts/invoice/src/invoice.rs
@@ -43,6 +43,8 @@ pub enum InvoiceStatus {
     RefundRequested,
     /// Escrow funds have been released to the merchant after payment confirmation.
     Released,
+    /// Refund has been approved by admin; terminal status for disputed invoices.
+    Refunded,
 }
 
 // contracttype enum wrappers for optional complex types; Option<Address> and
diff --git a/contracts/invoice/src/lib.rs b/contracts/invoice/src/lib.rs
index cc1bd08..c092c1a 100644
--- a/contracts/invoice/src/lib.rs
+++ b/contracts/invoice/src/lib.rs
@@ -435,6 +435,30 @@ impl InvoiceContract {
         Ok(())
     }
 
+    /// Approve a refund request. Admin-only. Transitions RefundRequested → Refunded.
+    pub fn approve_refund(env: Env, admin: Address, id: u64) -> Result<(), InvoiceError> {
+        require_admin(&env, &admin)?;
+        require_not_paused(&env)?;
+
+        let mut invoice: Invoice = env
+            .storage()
+            .persistent()
+            .get(&DataKey::Invoice(id))
+            .ok_or(InvoiceError::NotFound)?;
+
+        if invoice.status != InvoiceStatus::RefundRequested {
+            return Err(InvoiceError::NotRefundRequested);
+        }
+
+        invoice.status = InvoiceStatus::Refunded;
+        env.storage()
+            .persistent()
+            .set(&DataKey::Invoice(id), &invoice);
+        append_history(&env, id, InvoiceStatus::RefundRequested, InvoiceStatus::Refunded);
+        events::refund_approved(&env, id, &invoice);
+        Ok(())
+    }
+
     // --- #9: paginated merchant invoice index read ---
 
     /// Return a page of invoice IDs for `merchant`.
diff --git a/contracts/invoice/tests/invoice_test.rs b/contracts/invoice/tests/invoice_test.rs
index f5c19dd..04b3ff1 100644
--- a/contracts/invoice/tests/invoice_test.rs
+++ b/contracts/invoice/tests/invoice_test.rs
@@ -614,6 +614,7 @@ fn test_abi_snapshot_matches_contract() {
         "set_grace_window",
         "get_grace_window",
         "release_escrow",
+        "approve_refund",
     ]
     .iter()
     .copied()
@@ -628,6 +629,7 @@ fn test_abi_snapshot_matches_contract() {
         "escrow_released",
         "contract_paused",
         "contract_unpaused",
+        "refund_approved",
     ]
     .iter()
     .copied()
@@ -966,3 +968,68 @@ fn test_request_refund_only_recorded_payer_can_call() {
     assert_eq!(client.get_invoice(&id).status, InvoiceStatus::RefundRequested);
 }
 
+// --- approve_refund tests ---
+
+#[test]
+fn test_approve_refund_transitions_to_refunded() {
+    let (env, admin, client) = setup();
+    let merchant = Address::generate(&env);
+    let payer = Address::generate(&env);
+    let id = client.create_invoice(
+        &merchant,
+        &10_000_000,
+        &10_250_000,
+        &3600,
+        &MaybeBytes::None,
+        &MaybeBytes::None,
+        &0,
+    );
+    client.mark_paid(&admin, &id, &payer, &MaybeBytes::None);
+    client.request_refund(&payer, &id);
+    assert_eq!(client.get_invoice(&id).status, InvoiceStatus::RefundRequested);
+    client.approve_refund(&admin, &id);
+    assert_eq!(client.get_invoice(&id).status, InvoiceStatus::Refunded);
+}
+
+#[test]
+fn test_approve_refund_requires_admin() {
+    let (env, admin, client) = setup();
+    let merchant = Address::generate(&env);
+    let payer = Address::generate(&env);
+    let rogue = Address::generate(&env);
+    let id = client.create_invoice(
+        &merchant,
+        &10_000_000,
+        &10_250_000,
+        &3600,
+        &MaybeBytes::None,
+        &MaybeBytes::None,
+        &0,
+    );
+    client.mark_paid(&admin, &id, &payer, &MaybeBytes::None);
+    client.request_refund(&payer, &id);
+    let err = client.try_approve_refund(&rogue, &id).unwrap_err().unwrap();
+    assert_eq!(err, InvoiceError::Unauthorized);
+    assert_eq!(client.get_invoice(&id).status, InvoiceStatus::RefundRequested);
+}
+
+#[test]
+fn test_approve_refund_requires_refund_requested_status() {
+    let (env, admin, client) = setup();
+    let merchant = Address::generate(&env);
+    let payer = Address::generate(&env);
+    let id = client.create_invoice(
+        &merchant,
+        &10_000_000,
+        &10_250_000,
+        &3600,
+        &MaybeBytes::None,
+        &MaybeBytes::None,
+        &0,
+    );
+    client.mark_paid(&admin, &id, &payer, &MaybeBytes::None);
+    // Invoice is Paid, not RefundRequested → should fail.
+    let err = client.try_approve_refund(&admin, &id).unwrap_err().unwrap();
+    assert_eq!(err, InvoiceError::NotRefundRequested);
+    assert_eq!(client.get_invoice(&id).status, InvoiceStatus::Paid);
+}