diff --git a/.azure/gpu-tests.yml b/.azure/gpu-tests.yml
index 68ba6974a3527..8ae670d265ced 100644
--- a/.azure/gpu-tests.yml
+++ b/.azure/gpu-tests.yml
@@ -75,7 +75,7 @@ jobs:
         CUDA_VERSION_MM=$(python -c "import torch ; print(''.join(map(str, torch.version.cuda.split('.')[:2])))")
         pip install "bagua-cuda$CUDA_VERSION_MM>=0.9.0"
         pip install -e .[strategies]
-        pip install deepspeed>0.6.4  # TODO: remove when docker images are upgraded
+        pip install -U deepspeed  # TODO: remove when docker images are upgraded
         pip install --requirement requirements/pytorch/devel.txt
         pip list
       env:
diff --git a/requirements/pytorch/strategies.txt b/requirements/pytorch/strategies.txt
index 4e916fbc6c61f..c5fc92a67a837 100644
--- a/requirements/pytorch/strategies.txt
+++ b/requirements/pytorch/strategies.txt
@@ -2,7 +2,7 @@
 #  in case you want to preserve/enforce restrictions on the latest compatible version, add "strict" as an in-line comment
 
 fairscale>=0.4.5, <=0.4.6
-deepspeed>=0.6.0, <0.7.0
+deepspeed>=0.6.0, <=0.7.0
 # no need to install with [pytorch] as pytorch is already installed
 horovod>=0.21.2, !=0.24.0, <0.25.1
 hivemind>=1.0.1, <=1.0.1; sys_platform == 'linux'
diff --git a/src/pytorch_lightning/CHANGELOG.md b/src/pytorch_lightning/CHANGELOG.md
index 04db3d1908bb2..6d67d2d58643a 100644
--- a/src/pytorch_lightning/CHANGELOG.md
+++ b/src/pytorch_lightning/CHANGELOG.md
@@ -22,6 +22,9 @@ The format is based on [Keep a Changelog](http://keepachangelog.com/en/1.0.0/).
 - Raised a `MisconfigurationException` if batch transfer hooks are overriden with `IPUAccelerator` ([13961](https://github.com/Lightning-AI/lightning/pull/13961))
 
 
+- Updated compatibility for LightningLite to run with the latest DeepSpeed 0.7.0 ([13967](https://github.com/Lightning-AI/lightning/pull/13967))
+
+
 ### Deprecated
 
 - Deprecated `LightningDeepSpeedModule` ([#14000](https://github.com/Lightning-AI/lightning/pull/14000))
diff --git a/src/pytorch_lightning/lite/lite.py b/src/pytorch_lightning/lite/lite.py
index 5125bf4486a9d..981eed30635f6 100644
--- a/src/pytorch_lightning/lite/lite.py
+++ b/src/pytorch_lightning/lite/lite.py
@@ -40,7 +40,6 @@
     has_iterable_dataset,
 )
 from pytorch_lightning.utilities.exceptions import MisconfigurationException
-from pytorch_lightning.utilities.imports import _RequirementAvailable
 from pytorch_lightning.utilities.seed import seed_everything
 
 
@@ -106,8 +105,6 @@ def __init__(
         self._precision_plugin = self._strategy.precision_plugin
         self._models_setup: int = 0
 
-        self._check_deepspeed_support()
-
         # wrap the run method so we can inject setup logic or spawn processes for the user
         setattr(self, "run", partial(self._run_impl, self.run))
 
@@ -459,18 +456,6 @@ def _check_strategy_support(self, strategy: Optional[Union[str, Strategy]]) -> N
                 f" Choose one of {supported} or pass in a `Strategy` instance."
             )
 
-    def _check_deepspeed_support(self) -> None:
-        if (
-            isinstance(self._strategy, DeepSpeedStrategy)
-            and self._strategy.zero_stage_3
-            and _RequirementAvailable("deepspeed>=0.6.5")
-        ):
-            # https://github.com/microsoft/DeepSpeed/issues/2139
-            raise RuntimeError(
-                "DeepSpeed ZeRO-3 is not supported with this version of Lightning Lite and `deepspeed>=0.6.5`."
-                " Please downgrade deepspeed to 0.6.4 or check if a newer version of Lightning is available."
-            )
-
     @staticmethod
     def _supported_device_types() -> Sequence[_AcceleratorType]:
         return (
diff --git a/tests/tests_pytorch/lite/test_lite.py b/tests/tests_pytorch/lite/test_lite.py
index 2215ab3129780..86a0a5a82195a 100644
--- a/tests/tests_pytorch/lite/test_lite.py
+++ b/tests/tests_pytorch/lite/test_lite.py
@@ -11,7 +11,6 @@
 # WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
 # See the License for the specific language governing permissions and
 # limitations under the License.
-import contextlib
 import os
 from copy import deepcopy
 from unittest import mock
@@ -30,7 +29,6 @@
 from pytorch_lightning.strategies import DeepSpeedStrategy, Strategy
 from pytorch_lightning.utilities import _StrategyType
 from pytorch_lightning.utilities.exceptions import MisconfigurationException
-from pytorch_lightning.utilities.imports import _RequirementAvailable
 from pytorch_lightning.utilities.seed import pl_worker_init_function
 from tests_pytorch.helpers.runif import RunIf
 
@@ -480,13 +478,4 @@ def run(self):
             assert self.broadcast(True)
             assert self.is_global_zero == (self.local_rank == 0)
 
-    if _RequirementAvailable("deepspeed>=0.6.5"):
-        # https://github.com/microsoft/DeepSpeed/issues/2139
-        raise_if_deepspeed_incompatible = pytest.raises(
-            RuntimeError, match="DeepSpeed ZeRO-3 is not supported with this version of Lightning Lite"
-        )
-    else:
-        raise_if_deepspeed_incompatible = contextlib.suppress()
-
-    with raise_if_deepspeed_incompatible:
-        Lite(strategy=DeepSpeedStrategy(stage=3, logging_batch_size_per_gpu=1), devices=2, accelerator="gpu").run()
+    Lite(strategy=DeepSpeedStrategy(stage=3, logging_batch_size_per_gpu=1), devices=2, accelerator="gpu").run()