diff --git a/hscontrol/policy/v2/tailscale_ssh_data_compat_test.go b/hscontrol/policy/v2/tailscale_ssh_data_compat_test.go
index 74258ff5..03d9dd24 100644
--- a/hscontrol/policy/v2/tailscale_ssh_data_compat_test.go
+++ b/hscontrol/policy/v2/tailscale_ssh_data_compat_test.go
@@ -106,21 +106,6 @@ var sshRejectSkipReasons = map[string]string{
 	"ssh-e1": "domain validation: headscale has no 'associated tailnet domains' concept",
 	"ssh-e2": "domain validation: headscale has no 'associated tailnet domains' concept",
 	"ssh-malformed-user-localpart-multi-glob": "domain validation: headscale has no 'associated tailnet domains' concept (same gap as ssh-b4/d1/e1/e2)",
-
-	// GROUP_NESTING_ERROR_BODY (3 tests)
-	//
-	// SaaS rejects any group-in-group reference (cycle, chain,
-	// self-cycle) with the structured message
-	// `groups["X"]: "Y": group members cannot be recursive`.
-	// headscale rejects too but the error surfaces as a generic
-	// `parsing policy: parsing policy from bytes: json: unable to
-	// unmarshal …` because the group resolver fails before the
-	// validation phase that would emit a specific message. Wire the
-	// resolver's "group references a group" detection to produce the
-	// SaaS-style structured error so the body matches.
-	"ssh-group-nested-cycle":      "group nesting rejected with different error body (parse error vs structured 'group members cannot be recursive')",
-	"ssh-group-nested-three-deep": "group nesting rejected with different error body (parse error vs structured 'group members cannot be recursive')",
-	"ssh-group-nested-two-deep":   "group nesting rejected with different error body (parse error vs structured 'group members cannot be recursive')",
 }
 
 // TestSSHDataCompat is a data-driven test that loads all ssh-*.hujson test
diff --git a/hscontrol/policy/v2/types.go b/hscontrol/policy/v2/types.go
index 4e4c3ecd..7a12188f 100644
--- a/hscontrol/policy/v2/types.go
+++ b/hscontrol/policy/v2/types.go
@@ -54,6 +54,7 @@ var (
 	ErrSSHActionInvalid                   = errors.New("is not a valid action")
 	ErrSSHDestinationHostAlias            = errors.New("invalid dst")
 	ErrTagNameMustStartWithLetter         = errors.New("tag names must start with a letter, after 'tag:'")
+	ErrGroupMembersCannotBeRecursive      = errors.New("group members cannot be recursive")
 )
 
 // SSH check period constants per Tailscale docs:
@@ -104,7 +105,6 @@ var (
 	ErrGroupNotDefined             = errors.New("group not defined in policy")
 	ErrInvalidGroupMember          = errors.New("invalid group member type")
 	ErrGroupValueNotArray          = errors.New("group value must be an array of users")
-	ErrNestedGroups                = errors.New("nested groups are not allowed")
 	ErrInvalidHostIP               = errors.New("hostname contains invalid IP address")
 	ErrTagNotDefined               = errors.New("tag not found")
 	ErrAutoApproverNotAlias        = errors.New("auto approver is not an alias")
@@ -1388,6 +1388,27 @@ func (g *Groups) UnmarshalJSON(b []byte) error {
 		}
 	}
 
+	// SaaS rejects any group-in-group reference (cycle, chain,
+	// self-cycle) with `groups["X"]: "Y": group members cannot be
+	// recursive`. Iterate keys in descending alphabetical order so
+	// the reported (X, Y) pair matches the SaaS engine, which
+	// reports the deepest non-leaf parent first.
+	keys := make([]string, 0, len(rawGroups))
+	for k := range rawGroups {
+		keys = append(keys, k)
+	}
+
+	slices.Sort(keys)
+	slices.Reverse(keys)
+
+	for _, key := range keys {
+		for _, u := range rawGroups[key] {
+			if isGroup(u) {
+				return fmt.Errorf("groups[%q]: %q: %w", key, u, ErrGroupMembersCannotBeRecursive)
+			}
+		}
+	}
+
 	*g = make(Groups)
 
 	for key, value := range rawGroups {
@@ -1400,10 +1421,6 @@ func (g *Groups) UnmarshalJSON(b []byte) error {
 
 			err := username.Validate()
 			if err != nil {
-				if isGroup(u) {
-					return fmt.Errorf("%w: found %q inside %q", ErrNestedGroups, u, group)
-				}
-
 				return err
 			}
 
diff --git a/hscontrol/policy/v2/types_test.go b/hscontrol/policy/v2/types_test.go
index a46738b7..8dd06464 100644
--- a/hscontrol/policy/v2/types_test.go
+++ b/hscontrol/policy/v2/types_test.go
@@ -407,8 +407,50 @@ func TestUnmarshalPolicy(t *testing.T) {
 	},
 }
 `,
-			// wantErr: `username must contain @, got: "group:inner"`,
-			wantErr: `nested groups are not allowed: found "group:inner" inside "group:example"`,
+			wantErr: `groups["group:example"]: "group:inner": group members cannot be recursive`,
+		},
+		{
+			// SaaS reports the deepest non-leaf parent first: for
+			// the three-deep chain `a -> b -> c -> user`, the
+			// reported pair is `b -> c` rather than `a -> b`.
+			name: "group-nested-three-deep",
+			input: `
+{
+	"groups": {
+		"group:a": ["group:b"],
+		"group:b": ["group:c"],
+		"group:c": ["thor@example.org"],
+	},
+}
+`,
+			wantErr: `groups["group:b"]: "group:c": group members cannot be recursive`,
+		},
+		{
+			// Cycle `a <-> b`: reported as `b -> a` so the body
+			// matches SaaS exactly.
+			name: "group-nested-cycle",
+			input: `
+{
+	"groups": {
+		"group:a": ["group:b"],
+		"group:b": ["group:a"],
+	},
+}
+`,
+			wantErr: `groups["group:b"]: "group:a": group members cannot be recursive`,
+		},
+		{
+			// Self-cycle: the same group appears as its own
+			// member. Same wording.
+			name: "group-nested-self-cycle",
+			input: `
+{
+	"groups": {
+		"group:a": ["group:a"],
+	},
+}
+`,
+			wantErr: `groups["group:a"]: "group:a": group members cannot be recursive`,
 		},
 		{
 			name: "invalid-addr",