diff --git a/src/app/api/applications/route.test.ts b/src/app/api/applications/route.test.ts
new file mode 100644
index 00000000..792ceeae
--- /dev/null
+++ b/src/app/api/applications/route.test.ts
@@ -0,0 +1,180 @@
+import { describe, it, expect, vi, beforeEach } from "vitest";
+import { NextRequest } from "next/server";
+import { POST } from "./route";
+
+// ── Mocks ──────────────────────────────────────────────────────────
+
+const mockFrom = vi.fn();
+
+const supabaseClient = {
+  from: mockFrom,
+};
+
+vi.mock("@/lib/auth/get-user", () => ({
+  getAuthContext: vi.fn(),
+  createServiceClient: vi.fn(() => ({
+    auth: { admin: { getUserById: vi.fn().mockResolvedValue({ data: null }) } },
+  })),
+}));
+
+vi.mock("@/lib/rate-limit", () => ({
+  checkRateLimit: vi.fn(() => ({ allowed: true })),
+  rateLimitExceeded: vi.fn(),
+  getRateLimitIdentifier: vi.fn(() => "test"),
+}));
+
+vi.mock("@/lib/reputation-hooks", () => ({
+  getUserDid: vi.fn().mockResolvedValue(null),
+  onApplicationSubmitted: vi.fn(),
+}));
+
+vi.mock("@/lib/email", () => ({
+  sendEmail: vi.fn().mockResolvedValue(undefined),
+  newApplicationEmail: vi.fn(() => ({ subject: "test", text: "test", html: "test" })),
+}));
+
+vi.mock("@/lib/webhooks/dispatch", () => ({
+  dispatchWebhookAsync: vi.fn(),
+}));
+
+vi.mock("@/lib/activity", () => ({
+  logActivity: vi.fn().mockResolvedValue(undefined),
+}));
+
+import { getAuthContext } from "@/lib/auth/get-user";
+const mockGetAuthContext = vi.mocked(getAuthContext);
+
+type MockAuthContext = any;
+
+const GIG_ID = "00000000-0000-4000-a000-000000000001";
+
+function makeRequest(body: Record<string, unknown>) {
+  return new NextRequest("http://localhost/api/applications", {
+    method: "POST",
+    headers: { "Content-Type": "application/json" },
+    body: JSON.stringify(body),
+  });
+}
+
+function mockChain() {
+  const chain: Record<string, unknown> = {};
+  for (const m of ["select", "update", "insert", "eq", "single", "contains", "order"]) {
+    chain[m] = vi.fn().mockReturnValue(chain);
+  }
+  return chain;
+}
+
+beforeEach(() => {
+  vi.clearAllMocks();
+});
+
+// ── Tests ──────────────────────────────────────────────────────────
+
+describe("POST /api/applications - re-apply after withdrawal", () => {
+  it("re-activates a withdrawn application instead of blocking (regression)", async () => {
+    // Regression for the ugig bug where a withdrawn application still counted
+    // as "already applied", so the applicant could never re-apply and was
+    // therefore blocked from ever invoicing merged work.
+    const insertCalls: unknown[] = [];
+    const updateCalls: Record<string, unknown>[] = [];
+    const applicationsCalls: string[] = [];
+
+    mockFrom.mockImplementation((table: string) => {
+      const chain = mockChain();
+
+      if (table === "gigs") {
+        (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+          data: {
+            poster_id: "poster-1",
+            status: "active",
+            title: "Test Gig",
+            poster: { full_name: "Poster" },
+          },
+          error: null,
+        });
+      } else if (table === "applications") {
+        applicationsCalls.push(table);
+        if (applicationsCalls.length === 1) {
+          // Existing-application lookup: a WITHDRAWN application exists.
+          (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+            data: { id: "app-existing", status: "withdrawn" },
+            error: null,
+          });
+        } else {
+          // Re-activation path: must UPDATE, never INSERT.
+          (chain.update as ReturnType<typeof vi.fn>).mockImplementation(
+            (payload: Record<string, unknown>) => {
+              updateCalls.push(payload);
+              return chain;
+            }
+          );
+          (chain.insert as ReturnType<typeof vi.fn>).mockImplementation((payload: unknown) => {
+            insertCalls.push(payload);
+            return chain;
+          });
+          (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+            data: { id: "app-existing", gig_id: GIG_ID, applicant_id: "user-1", status: "pending" },
+            error: null,
+          });
+        }
+      } else if (table === "profiles") {
+        (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+          data: { full_name: "Applicant", username: "applicant" },
+          error: null,
+        });
+      }
+      return chain;
+    });
+
+    mockGetAuthContext.mockResolvedValue({
+      user: { id: "user-1", authMethod: "api_key" },
+      supabase: supabaseClient,
+    } as MockAuthContext);
+
+    const req = makeRequest({ gig_id: GIG_ID, cover_letter: "x".repeat(60) });
+    const res = await POST(req);
+
+    expect(res.status).toBe(201);
+    const body = await res.json();
+    expect(body.application.id).toBe("app-existing");
+    // The withdrawn row is reused (updated back to pending), not duplicated.
+    expect(insertCalls).toHaveLength(0);
+    expect(updateCalls).toHaveLength(1);
+    expect(updateCalls[0].status).toBe("pending");
+  });
+
+  it("still blocks re-applying when an active (pending) application exists", async () => {
+    mockFrom.mockImplementation((table: string) => {
+      const chain = mockChain();
+      if (table === "gigs") {
+        (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+          data: {
+            poster_id: "poster-1",
+            status: "active",
+            title: "Test Gig",
+            poster: { full_name: "Poster" },
+          },
+          error: null,
+        });
+      } else if (table === "applications") {
+        (chain.single as ReturnType<typeof vi.fn>).mockResolvedValue({
+          data: { id: "app-existing", status: "pending" },
+          error: null,
+        });
+      }
+      return chain;
+    });
+
+    mockGetAuthContext.mockResolvedValue({
+      user: { id: "user-1", authMethod: "api_key" },
+      supabase: supabaseClient,
+    } as MockAuthContext);
+
+    const req = makeRequest({ gig_id: GIG_ID, cover_letter: "x".repeat(60) });
+    const res = await POST(req);
+
+    expect(res.status).toBe(400);
+    const body = await res.json();
+    expect(body.error).toContain("already applied");
+  });
+});
diff --git a/src/app/api/applications/route.ts b/src/app/api/applications/route.ts
index 51f0dcc4..e4bca073 100644
--- a/src/app/api/applications/route.ts
+++ b/src/app/api/applications/route.ts
@@ -73,28 +73,43 @@ export async function POST(request: NextRequest) {
     // Check if already applied
     const { data: existingApplication } = await supabase
       .from("applications")
-      .select("id")
+      .select("id, status")
       .eq("gig_id", gig_id)
       .eq("applicant_id", user.id)
       .single();
 
-    if (existingApplication) {
+    // A withdrawn application may be resubmitted. Any other existing status
+    // (pending/reviewing/shortlisted/accepted/rejected) still blocks re-applying.
+    if (existingApplication && existingApplication.status !== "withdrawn") {
       return NextResponse.json(
         { error: "You have already applied to this gig" },
         { status: 400 }
       );
     }
 
-    // Create application
-    const { data: application, error } = await supabase
-      .from("applications")
-      .insert({
-        gig_id,
-        applicant_id: user.id,
-        ...applicationData,
-      })
-      .select()
-      .single();
+    // Create the application, or re-activate a withdrawn one. The
+    // UNIQUE(gig_id, applicant_id) constraint means a prior withdrawn row must
+    // be updated in place rather than inserted a second time.
+    const { data: application, error } = existingApplication
+      ? await supabase
+          .from("applications")
+          .update({
+            ...applicationData,
+            status: "pending",
+            updated_at: new Date().toISOString(),
+          })
+          .eq("id", existingApplication.id)
+          .select()
+          .single()
+      : await supabase
+          .from("applications")
+          .insert({
+            gig_id,
+            applicant_id: user.id,
+            ...applicationData,
+          })
+          .select()
+          .single();
 
     if (error) {
       return NextResponse.json({ error: error.message }, { status: 400 });