diff --git a/tests/unit/test_logging_config.py b/tests/unit/test_logging_config.py
new file mode 100644
index 0000000..b7a2556
--- /dev/null
+++ b/tests/unit/test_logging_config.py
@@ -0,0 +1,147 @@
+"""
+Unit tests for the logging configuration utility module.
+"""
+import logging
+import os
+import pytest
+from unittest.mock import patch
+import sys
+from pathlib import Path
+
+sys.path.insert(0, str(Path(__file__).parent.parent.parent / "services" / "utils"))
+
+from logging_config import setup_logging
+
+
+class TestSetupLogging:
+    """Tests for the setup_logging function."""
+
+    def test_returns_logger_instance(self):
+        """Test that setup_logging returns a logging.Logger instance."""
+        logger = setup_logging("test_logger")
+        assert isinstance(logger, logging.Logger)
+
+    def test_logger_has_correct_name(self):
+        """Test that the logger is created with the correct name."""
+        logger = setup_logging("my_service")
+        assert logger.name == "my_service"
+
+    def test_default_log_level_is_info(self):
+        """Test that default log level is INFO when LOG_LEVEL env var is not set."""
+        with patch.dict(os.environ, {}, clear=False):
+            os.environ.pop("LOG_LEVEL", None)
+            logger = setup_logging("test_default_level")
+            assert logger.level == logging.INFO
+
+    def test_log_level_from_environment(self):
+        """Test that log level is set from LOG_LEVEL environment variable."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "DEBUG"}):
+            logger = setup_logging("test_debug_level")
+            assert logger.level == logging.DEBUG
+
+    def test_log_level_warning_from_environment(self):
+        """Test that WARNING log level is set correctly from environment."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "WARNING"}):
+            logger = setup_logging("test_warning_level")
+            assert logger.level == logging.WARNING
+
+    def test_log_level_error_from_environment(self):
+        """Test that ERROR log level is set correctly from environment."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "ERROR"}):
+            logger = setup_logging("test_error_level")
+            assert logger.level == logging.ERROR
+
+    def test_invalid_log_level_defaults_to_info(self):
+        """Test that invalid LOG_LEVEL defaults to INFO."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "INVALID_LEVEL"}):
+            logger = setup_logging("test_invalid_level")
+            assert logger.level == logging.INFO
+
+    def test_logger_has_handlers(self):
+        """Test that the logger has handlers attached."""
+        logger = setup_logging("test_handlers")
+        assert len(logger.handlers) > 0
+
+    def test_logger_has_console_handler(self):
+        """Test that a StreamHandler (console) is attached to the logger."""
+        logger = setup_logging("test_console_handler")
+        handler_types = [type(h) for h in logger.handlers]
+        assert logging.StreamHandler in handler_types
+
+    def test_logger_has_file_handler(self):
+        """Test that a RotatingFileHandler is attached to the logger."""
+        from logging.handlers import RotatingFileHandler
+        logger = setup_logging("test_file_handler")
+        handler_types = [type(h) for h in logger.handlers]
+        assert RotatingFileHandler in handler_types
+
+    def test_logger_propagate_is_false(self):
+        """Test that logger propagation is disabled."""
+        logger = setup_logging("test_propagate")
+        assert logger.propagate is False
+
+    def test_same_logger_no_duplicate_handlers(self):
+        """Test that calling setup_logging twice does not duplicate handlers."""
+        logger1 = setup_logging("test_same_logger")
+        handler_count = len(logger1.handlers)
+        logger2 = setup_logging("test_same_logger")
+        assert len(logger2.handlers) == handler_count
+
+    def test_logs_directory_created(self):
+        """Test that the logs directory is created."""
+        setup_logging("test_logs_dir")
+        assert os.path.exists("logs")
+
+    def test_log_format_contains_required_fields(self):
+        """Test that log formatter contains timestamp, name, level, and message."""
+        logger = setup_logging("test_format")
+        formatter_found = False
+        for handler in logger.handlers:
+            if handler.formatter:
+                fmt = handler.formatter._fmt
+                assert "%(asctime)s" in fmt
+                assert "%(name)s" in fmt
+                assert "%(levelname)s" in fmt
+                assert "%(message)s" in fmt
+                formatter_found = True
+                break
+        assert formatter_found, "No formatter found on any handler"
+
+
+class TestSensitiveDataLogging:
+    """Tests to ensure sensitive data handling."""
+
+    def test_logger_name_not_sensitive(self):
+        """Test that setup_logging accepts safe logger names without modification."""
+        safe_name = "test_service"
+        logger = setup_logging(safe_name)
+        assert logger.name == safe_name
+        # Document: callers must not pass sensitive data as logger names
+        # as setup_logging accepts the name verbatim without sanitization
+
+    def test_logger_functional_for_normal_messages(self):
+        """Test that logger works normally without raising exceptions."""
+        logger = setup_logging("test_sensitive")
+        logger.info("User logged in successfully")
+        logger.warning("Test warning")
+        logger.error("Test error")
+
+
+class TestLogLevelCaseInsensitive:
+    """Tests for case insensitivity of LOG_LEVEL env variable."""
+
+    def test_lowercase_log_level(self):
+        """Test that lowercase log level env var is handled correctly."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "debug"}):
+            logger = setup_logging("test_lowercase")
+            assert logger.level == logging.DEBUG
+
+    def test_mixed_case_log_level(self):
+        """Test that mixed case log level env var is handled correctly."""
+        with patch.dict(os.environ, {"LOG_LEVEL": "Warning"}):
+            logger = setup_logging("test_mixed_case")
+            assert logger.level == logging.WARNING
+
+
+if __name__ == "__main__":
+    pytest.main([__file__, "-v"])
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