diff --git a/xds/internal/balancer/clusterimpl/balancer_test.go b/xds/internal/balancer/clusterimpl/balancer_test.go
index 5a4bb0f270b2..c049852f3193 100644
--- a/xds/internal/balancer/clusterimpl/balancer_test.go
+++ b/xds/internal/balancer/clusterimpl/balancer_test.go
@@ -20,9 +20,11 @@ package clusterimpl
 
 import (
 	"context"
+	"encoding/json"
 	"errors"
 	"fmt"
 	"strings"
+	"sync/atomic"
 	"testing"
 	"time"
 
@@ -40,6 +42,7 @@ import (
 	"google.golang.org/grpc/internal/xds"
 	"google.golang.org/grpc/internal/xds/bootstrap"
 	"google.golang.org/grpc/resolver"
+	"google.golang.org/grpc/serviceconfig"
 	xdsinternal "google.golang.org/grpc/xds/internal"
 	"google.golang.org/grpc/xds/internal/testutils/fakeclient"
 	"google.golang.org/grpc/xds/internal/xdsclient"
@@ -820,6 +823,108 @@ func (s) TestUpdateLRSServer(t *testing.T) {
 	}
 }
 
+// Test verifies that child policies was updated on receipt of
+// configuration update.
+func (s) TestChildPolicyUpdatedOnConfigUpdate(t *testing.T) {
+	defer xdsclient.ClearCounterForTesting(testClusterName, testServiceName)
+	xdsC := fakeclient.NewClient()
+
+	builder := balancer.Get(Name)
+	cc := testutils.NewBalancerClientConn(t)
+	b := builder.Build(cc, balancer.BuildOptions{})
+	defer b.Close()
+
+	childConfigUpdated := atomic.Bool{}
+	// Create a stub balancer which updates picker on receipt of config
+	// update, and notifies when child policy was updated via
+	// childConfigUpdated.
+	const childPolicyName = "stubBalancer-ChildPolicyUpdatedSynchronouslyOnConfigUpdate"
+	stub.Register(childPolicyName, stub.BalancerFuncs{
+		UpdateClientConnState: func(bd *stub.BalancerData, ccs balancer.ClientConnState) error {
+			bd.ClientConn.UpdateState(balancer.State{
+				Picker: base.NewErrPicker(errors.New("dummy error picker")),
+			})
+			childConfigUpdated.Store(true)
+			return nil
+		},
+	})
+
+	testLRSServerConfig, err := bootstrap.ServerConfigForTesting(bootstrap.ServerConfigTestingOptions{
+		URI:          "trafficdirector.googleapis.com:443",
+		ChannelCreds: []bootstrap.ChannelCreds{{Type: "google_default"}},
+	})
+	if err != nil {
+		t.Fatalf("Failed to create LRS server config for testing: %v", err)
+	}
+	if err := b.UpdateClientConnState(balancer.ClientConnState{
+		ResolverState: xdsclient.SetClient(resolver.State{Addresses: testBackendAddrs}, xdsC),
+		BalancerConfig: &LBConfig{
+			Cluster:             testClusterName,
+			EDSServiceName:      testServiceName,
+			LoadReportingServer: testLRSServerConfig,
+			ChildPolicy: &internalserviceconfig.BalancerConfig{
+				Name: childPolicyName,
+			},
+		},
+	}); err != nil {
+		t.Fatalf("Error updating the config: %v", err)
+	}
+
+	if !childConfigUpdated.Load() {
+		t.Fatal("Child policy was not updated on receipt of configuration update.")
+	}
+}
+
+// Test verifies that config update fails if child policy config
+// failed to parse.
+func (s) TestFailedToParseChildPolicyConfig(t *testing.T) {
+	defer xdsclient.ClearCounterForTesting(testClusterName, testServiceName)
+	xdsC := fakeclient.NewClient()
+
+	builder := balancer.Get(Name)
+	cc := testutils.NewBalancerClientConn(t)
+	b := builder.Build(cc, balancer.BuildOptions{})
+	defer b.Close()
+
+	// Create a stub balancer which fails to ParseConfig.
+	const parseConfigError = "failed to parse config"
+	const childPolicyName = "stubBalancer-FailedToParseChildPolicyConfig"
+	stub.Register(childPolicyName, stub.BalancerFuncs{
+		UpdateClientConnState: func(bd *stub.BalancerData, ccs balancer.ClientConnState) error {
+			bd.ClientConn.UpdateState(balancer.State{
+				Picker: base.NewErrPicker(errors.New("dummy error picker")),
+			})
+			return nil
+		},
+		ParseConfig: func(lbCfg json.RawMessage) (serviceconfig.LoadBalancingConfig, error) {
+			return nil, errors.New(parseConfigError)
+		},
+	})
+
+	testLRSServerConfig, err := bootstrap.ServerConfigForTesting(bootstrap.ServerConfigTestingOptions{
+		URI:          "trafficdirector.googleapis.com:443",
+		ChannelCreds: []bootstrap.ChannelCreds{{Type: "google_default"}},
+	})
+	if err != nil {
+		t.Fatalf("Failed to create LRS server config for testing: %v", err)
+	}
+	err = b.UpdateClientConnState(balancer.ClientConnState{
+		ResolverState: xdsclient.SetClient(resolver.State{Addresses: testBackendAddrs}, xdsC),
+		BalancerConfig: &LBConfig{
+			Cluster:             testClusterName,
+			EDSServiceName:      testServiceName,
+			LoadReportingServer: testLRSServerConfig,
+			ChildPolicy: &internalserviceconfig.BalancerConfig{
+				Name: childPolicyName,
+			},
+		},
+	})
+
+	if err == nil || !strings.Contains(err.Error(), parseConfigError) {
+		t.Errorf("Got error: %v, want error: parsed config to fail.", err)
+	}
+}
+
 func assertString(f func() (string, error)) string {
 	s, err := f()
 	if err != nil {
diff --git a/xds/internal/balancer/clusterimpl/clusterimpl.go b/xds/internal/balancer/clusterimpl/clusterimpl.go
index 9058f0d01fc8..de3b9f023c4a 100644
--- a/xds/internal/balancer/clusterimpl/clusterimpl.go
+++ b/xds/internal/balancer/clusterimpl/clusterimpl.go
@@ -247,8 +247,22 @@ func (b *clusterImplBalancer) UpdateClientConnState(s balancer.ClientConnState)
 	}
 
 	if b.config == nil || b.config.ChildPolicy.Name != newConfig.ChildPolicy.Name {
-		if err := b.child.SwitchTo(bb); err != nil {
-			return fmt.Errorf("error switching to child of type %q: %v", newConfig.ChildPolicy.Name, err)
+		if b.config == nil || b.config.ChildPolicy.Name != newConfig.ChildPolicy.Name {
+			strCfg, err := newConfig.ChildPolicy.MarshalJSON()
+			if err != nil {
+				return fmt.Errorf("error marshaling config: %v", err)
+			}
+			r := json.RawMessage(strCfg)
+			sc, err := gracefulswitch.ParseConfig(r)
+			if err != nil {
+				return fmt.Errorf("error parsing child config: %v", err)
+			}
+			if err := b.child.UpdateClientConnState(balancer.ClientConnState{
+				ResolverState:  s.ResolverState,
+				BalancerConfig: sc,
+			}); err != nil {
+				return fmt.Errorf("error switching to child of type %q: %v", newConfig.ChildPolicy.Name, err)
+			}
 		}
 	}
 	b.config = newConfig