diff --git a/tests/utils_/test_argparse_utils.py b/tests/utils_/test_argparse_utils.py
index fbc278404..53639d02b 100644
--- a/tests/utils_/test_argparse_utils.py
+++ b/tests/utils_/test_argparse_utils.py
@@ -379,6 +379,50 @@ def test_load_config_file(tmp_path):
     os.remove(str(config_file_path))
 
 
+def test_load_config_file_nested(tmp_path):
+    """Test that nested dicts in YAML config are converted to JSON strings."""
+    config_data = {
+        "port": 8000,
+        "compilation-config": {
+            "pass_config": {"fuse_allreduce_rms": True},
+        },
+    }
+    config_file_path = tmp_path / "nested_config.yaml"
+    with open(config_file_path, "w") as f:
+        yaml.dump(config_data, f)
+
+    parser = FlexibleArgumentParser()
+    processed_args = parser.load_config_file(str(config_file_path))
+
+    assert processed_args[processed_args.index("--port") + 1] == "8000"
+    cc_value = json.loads(
+        processed_args[processed_args.index("--compilation-config") + 1]
+    )
+    assert cc_value == {"pass_config": {"fuse_allreduce_rms": True}}
+
+
+def test_nested_config_end_to_end(tmp_path):
+    """Test end-to-end parsing of nested configs in YAML files."""
+    config_data = {
+        "compilation-config": {
+            "mode": 3,
+            "pass_config": {"fuse_allreduce_rms": True},
+        },
+    }
+    config_file_path = tmp_path / "nested_config.yaml"
+    with open(config_file_path, "w") as f:
+        yaml.dump(config_data, f)
+
+    parser = FlexibleArgumentParser()
+    parser.add_argument("-cc", "--compilation-config", type=json.loads)
+    args = parser.parse_args(["--config", str(config_file_path)])
+
+    assert args.compilation_config == {
+        "mode": 3,
+        "pass_config": {"fuse_allreduce_rms": True},
+    }
+
+
 def test_compilation_mode_string_values(parser):
     """Test that -cc.mode accepts both integer and string mode values."""
     args = parser.parse_args(["-cc.mode", "0"])
diff --git a/vllm/utils/argparse_utils.py b/vllm/utils/argparse_utils.py
index 9c2cec876..d88f2fa6f 100644
--- a/vllm/utils/argparse_utils.py
+++ b/vllm/utils/argparse_utils.py
@@ -444,16 +444,30 @@ class FlexibleArgumentParser(ArgumentParser):
 
     def load_config_file(self, file_path: str) -> list[str]:
         """Loads a yaml file and returns the key value pairs as a
-        flattened list with argparse like pattern
+        flattened list with argparse like pattern.
+
+        Supports both flat configs and nested YAML structures.
+
+        Flat config example:
         ```yaml
             port: 12323
             tensor-parallel-size: 4
         ```
         returns:
-            processed_args: list[str] = [
-                '--port': '12323',
-                '--tensor-parallel-size': '4'
-            ]
+            ['--port', '12323', '--tensor-parallel-size', '4']
+
+        Nested config example:
+        ```yaml
+            compilation-config:
+              pass_config:
+                fuse_allreduce_rms: true
+            speculative-config:
+              model: "nvidia/gpt-oss-120b-Eagle3-v2"
+              num_speculative_tokens: 3
+        ```
+        returns:
+            ['--compilation-config', '{"pass_config": {"fuse_allreduce_rms": true}}',
+             '--speculative-config', '{"model": "nvidia/gpt-oss-120b-Eagle3-v2", ...}']
         """
         extension: str = file_path.split(".")[-1]
         if extension not in ("yaml", "yml"):
@@ -461,10 +475,10 @@ class FlexibleArgumentParser(ArgumentParser):
                 f"Config file must be of a yaml/yml type. {extension} supplied"
             )
 
-        # only expecting a flat dictionary of atomic types
+        # Supports both flat configs and nested dicts
         processed_args: list[str] = []
 
-        config: dict[str, int | str] = {}
+        config: dict[str, Any] = {}
         try:
             with open(file_path) as config_file:
                 config = yaml.safe_load(config_file)
@@ -484,6 +498,11 @@ class FlexibleArgumentParser(ArgumentParser):
                     processed_args.append("--" + key)
                     for item in value:
                         processed_args.append(str(item))
+            elif isinstance(value, dict):
+                # Convert nested dicts to JSON strings so they can be parsed
+                # by the existing JSON argument parsing machinery.
+                processed_args.append("--" + key)
+                processed_args.append(json.dumps(value))
             else:
                 processed_args.append("--" + key)
                 processed_args.append(str(value))