diff --git a/flagsmith-core.ts b/flagsmith-core.ts
index d81d05e..3e56587 100644
--- a/flagsmith-core.ts
+++ b/flagsmith-core.ts
@@ -623,6 +623,13 @@ const Flagsmith = class {
             this.evaluationEvent = state.evaluationEvent || this.evaluationEvent;
             this.identity = this.getContext()?.identity?.identifier
             this.log("setState called", this)
+            // Hydration from server state (e.g. <FlagsmithProvider serverState={...}>
+            // without an options prop) must flip loadingState to loaded. Guarded on
+            // source===NONE so we never clobber a loaded state already set by
+            // init()/getFlags()/cache paths that also call setState internally.
+            if (this.loadingState.source === FlagSource.NONE && this.flags && Object.keys(this.flags).length > 0) {
+                this.setLoadingState(this._loadedState(null, FlagSource.SERVER));
+            }
         }
     }
 
diff --git a/test/react.test.tsx b/test/react.test.tsx
index cc996e0..f67d1e6 100644
--- a/test/react.test.tsx
+++ b/test/react.test.tsx
@@ -186,6 +186,25 @@ describe('FlagsmithProvider', () => {
             expect(JSON.parse(screen.getByTestId('flags').innerHTML)).toEqual(removeIds(defaultState.flags))
         })
     })
+    it('reports a loaded state when hydrated from serverState with no options', async () => {
+        const { flagsmith } = getFlagsmith({})
+        render(
+            <FlagsmithProvider flagsmith={flagsmith} serverState={defaultState}>
+                <FlagsmithPage />
+            </FlagsmithProvider>,
+        )
+
+        // Flags are available from serverState immediately.
+        expect(JSON.parse(screen.getByTestId('flags').innerHTML)).toEqual(removeIds(defaultState.flags))
+
+        // Loading state must not be stuck on isLoading/isFetching=true.
+        await waitFor(() => {
+            const loadingState = JSON.parse(screen.getByTestId('loading-state').innerHTML)
+            expect(loadingState.isLoading).toBe(false)
+            expect(loadingState.isFetching).toBe(false)
+            expect(loadingState.error).toBeNull()
+        })
+    })
     it('ignores init response if identify gets called and resolves first', async () => {
         const onChange = jest.fn()
         const { flagsmith, initConfig, mockFetch } = getFlagsmith({ onChange })