diff --git a/crates/router/src/consts.rs b/crates/router/src/consts.rs
index f020d50f80..3c3413caf2 100644
--- a/crates/router/src/consts.rs
+++ b/crates/router/src/consts.rs
@@ -11,6 +11,8 @@ pub(crate) const ALPHABETS: [char; 62] = [
 ];
 /// API client request timeout (in seconds)
 pub const REQUEST_TIME_OUT: u64 = 30;
+pub const REQUEST_TIMEOUT_ERROR_CODE: &str = "TIMEOUT";
+pub const REQUEST_TIMEOUT_ERROR_MESSAGE: &str = "Connector did not respond in specified time";
 
 ///Payment intent fulfillment default timeout (in seconds)
 pub const DEFAULT_FULFILLMENT_TIME: i64 = 15 * 60;
diff --git a/crates/router/src/core/errors.rs b/crates/router/src/core/errors.rs
index 933ad295c9..b877eff907 100644
--- a/crates/router/src/core/errors.rs
+++ b/crates/router/src/core/errors.rs
@@ -186,7 +186,7 @@ pub fn http_not_implemented() -> actix_web::HttpResponse<BoxBody> {
     .error_response()
 }
 
-#[derive(Debug, thiserror::Error)]
+#[derive(Debug, thiserror::Error, PartialEq)]
 pub enum ApiClientError {
     #[error("Header map construction failed")]
     HeaderMapConstructionFailed,
@@ -315,6 +315,8 @@ pub enum ConnectorError {
     MissingPaymentMethodType,
     #[error("Balance in the payment method is low")]
     InSufficientBalanceInPaymentMethod,
+    #[error("Server responded with Request Timeout")]
+    RequestTimeoutReceived,
 }
 
 #[derive(Debug, thiserror::Error)]
@@ -490,6 +492,18 @@ pub enum WebhooksFlowError {
     MissingRequiredField { field_name: &'static str },
 }
 
+impl ApiClientError {
+    pub fn is_upstream_timeout(&self) -> bool {
+        self == &Self::RequestTimeoutReceived
+    }
+}
+
+impl ConnectorError {
+    pub fn is_connector_timeout(&self) -> bool {
+        self == &Self::RequestTimeoutReceived
+    }
+}
+
 #[cfg(feature = "detailed_errors")]
 pub mod error_stack_parsing {
 
diff --git a/crates/router/src/core/payments/access_token.rs b/crates/router/src/core/payments/access_token.rs
index 067b6c71ac..e7b07efe73 100644
--- a/crates/router/src/core/payments/access_token.rs
+++ b/crates/router/src/core/payments/access_token.rs
@@ -4,6 +4,7 @@ use common_utils::ext_traits::AsyncExt;
 use error_stack::{IntoReport, ResultExt};
 
 use crate::{
+    consts,
     core::{
         errors::{self, RouterResult},
         payments,
@@ -151,16 +152,38 @@ pub async fn refresh_connector_auth(
         types::AccessToken,
     > = connector.connector.get_connector_integration();
 
-    let access_token_router_data = services::execute_connector_processing_step(
+    let access_token_router_data_result = services::execute_connector_processing_step(
         state,
         connector_integration,
         router_data,
         payments::CallConnectorAction::Trigger,
         None,
     )
-    .await
-    .change_context(errors::ApiErrorResponse::InternalServerError)
-    .attach_printable("Could not refresh access token")?;
+    .await;
+
+    let access_token_router_data = match access_token_router_data_result {
+        Ok(router_data) => Ok(router_data.response),
+        Err(connector_error) => {
+            // If we receive a timeout error from the connector, then
+            // the error has to be handled gracefully by updating the payment status to failed.
+            // further payment flow will not be continued
+            if connector_error.current_context().is_connector_timeout() {
+                let error_response = types::ErrorResponse {
+                    code: consts::REQUEST_TIMEOUT_ERROR_CODE.to_string(),
+                    message: consts::REQUEST_TIMEOUT_ERROR_MESSAGE.to_string(),
+                    reason: Some(consts::REQUEST_TIMEOUT_ERROR_MESSAGE.to_string()),
+                    status_code: 200,
+                };
+
+                Ok(Err(error_response))
+            } else {
+                Err(connector_error
+                    .change_context(errors::ApiErrorResponse::InternalServerError)
+                    .attach_printable("Could not refresh access token"))
+            }
+        }
+    }?;
+
     metrics::ACCESS_TOKEN_CREATION.add(
         &metrics::CONTEXT,
         1,
@@ -169,5 +192,5 @@ pub async fn refresh_connector_auth(
             connector.connector_name.to_string(),
         )],
     );
-    Ok(access_token_router_data.response)
+    Ok(access_token_router_data)
 }
diff --git a/crates/router/src/services/api.rs b/crates/router/src/services/api.rs
index 2a24acdbd1..c919fc943e 100644
--- a/crates/router/src/services/api.rs
+++ b/crates/router/src/services/api.rs
@@ -325,8 +325,16 @@ where
                             };
                             Ok(response)
                         }
-                        Err(error) => Err(error
-                            .change_context(errors::ConnectorError::ProcessingStepFailed(None))),
+                        Err(error) => {
+                            if error.current_context().is_upstream_timeout() {
+                                Err(error
+                                    .change_context(errors::ConnectorError::RequestTimeoutReceived))
+                            } else {
+                                Err(error.change_context(
+                                    errors::ConnectorError::ProcessingStepFailed(None),
+                                ))
+                            }
+                        }
                     }
                 }
                 None => Ok(router_data),