diff --git a/plugins/chat/assets/javascripts/discourse/components/chat-channel-unread-indicator.gjs b/plugins/chat/assets/javascripts/discourse/components/chat-channel-unread-indicator.gjs
index 86178c1f789..02a6a6d3036 100644
--- a/plugins/chat/assets/javascripts/discourse/components/chat-channel-unread-indicator.gjs
+++ b/plugins/chat/assets/javascripts/discourse/components/chat-channel-unread-indicator.gjs
@@ -11,44 +11,45 @@ export default class ChatChannelUnreadIndicator extends Component {
   get showUnreadIndicator() {
     return (
       this.args.channel.tracking.unreadCount > 0 ||
-      // We want to do this so we don't show a blue dot if the user is inside
-      // the channel and a new unread thread comes in.
-      (this.args.channel.isCategoryChannel &&
-        this.chat.activeChannel?.id !== this.args.channel.id &&
-        this.args.channel.unreadThreadsCountSinceLastViewed > 0)
+      this.args.channel.unreadThreadsCountSinceLastViewed > 0
     );
   }
 
-  get unreadCount() {
-    if (this.#hasChannelMentions()) {
+  get urgentCount() {
+    if (this.hasChannelMentions) {
       return this.args.channel.tracking.mentionCount;
     }
-    if (this.#hasWatchedThreads()) {
+    if (this.hasWatchedThreads) {
       return this.args.channel.tracking.watchedThreadsUnreadCount;
     }
     return this.args.channel.tracking.unreadCount;
   }
 
   get isUrgent() {
-    if (this.#onlyMentions()) {
-      return this.#hasChannelMentions();
+    if (this.onlyMentions) {
+      return this.hasChannelMentions;
     }
     return (
-      this.args.channel.isDirectMessageChannel ||
-      this.#hasChannelMentions() ||
-      this.#hasWatchedThreads()
+      this.isDirectMessage || this.hasChannelMentions || this.hasWatchedThreads
     );
   }
 
-  #hasChannelMentions() {
+  get isDirectMessage() {
+    return (
+      this.args.channel.isDirectMessageChannel &&
+      this.args.channel.tracking.unreadCount > 0
+    );
+  }
+
+  get hasChannelMentions() {
     return this.args.channel.tracking.mentionCount > 0;
   }
 
-  #hasWatchedThreads() {
+  get hasWatchedThreads() {
     return this.args.channel.tracking.watchedThreadsUnreadCount > 0;
   }
 
-  #onlyMentions() {
+  get onlyMentions() {
     return hasChatIndicator(this.currentUser).ONLY_MENTIONS;
   }
 
@@ -62,7 +63,7 @@ export default class ChatChannelUnreadIndicator extends Component {
       >
         <div class="chat-channel-unread-indicator__number">{{#if
             this.isUrgent
-          }}{{this.unreadCount}}{{else}}&nbsp;{{/if}}</div>
+          }}{{this.urgentCount}}{{else}}&nbsp;{{/if}}</div>
       </div>
     {{/if}}
   </template>
diff --git a/plugins/chat/assets/javascripts/discourse/services/chat-channels-manager.js b/plugins/chat/assets/javascripts/discourse/services/chat-channels-manager.js
index 56a3a8e4ca4..7c5106402f3 100644
--- a/plugins/chat/assets/javascripts/discourse/services/chat-channels-manager.js
+++ b/plugins/chat/assets/javascripts/discourse/services/chat-channels-manager.js
@@ -198,24 +198,37 @@ export default class ChatChannelsManager extends Service {
 
   #sortChannelsByActivity(channels) {
     return channels.sort((a, b) => {
-      // if both channels have mention count, sort by slug
-      // otherwise prioritize channel with mention count
-      if (a.tracking.mentionCount > 0 && b.tracking.mentionCount > 0) {
+      const stats = {
+        a: {
+          urgent:
+            a.tracking.mentionCount + a.tracking.watchedThreadsUnreadCount,
+          unread: a.tracking.unreadCount + a.threadsManager.unreadThreadCount,
+        },
+        b: {
+          urgent:
+            b.tracking.mentionCount + b.tracking.watchedThreadsUnreadCount,
+          unread: b.tracking.unreadCount + b.threadsManager.unreadThreadCount,
+        },
+      };
+
+      // if both channels have urgent count, sort by slug
+      // otherwise prioritize channel with urgent count
+      if (stats.a.urgent > 0 && stats.b.urgent > 0) {
         return a.slug?.localeCompare?.(b.slug);
       }
 
-      if (a.tracking.mentionCount > 0 || b.tracking.mentionCount > 0) {
-        return a.tracking.mentionCount > b.tracking.mentionCount ? -1 : 1;
+      if (stats.a.urgent > 0 || stats.b.urgent > 0) {
+        return stats.a.urgent > stats.b.urgent ? -1 : 1;
       }
 
-      // if both channels have unread count, sort by slug
+      // if both channels have unread messages or threads, sort by slug
       // otherwise prioritize channel with unread count
-      if (a.tracking.unreadCount > 0 && b.tracking.unreadCount > 0) {
+      if (stats.a.unread > 0 && stats.b.unread > 0) {
         return a.slug?.localeCompare?.(b.slug);
       }
 
-      if (a.tracking.unreadCount > 0 || b.tracking.unreadCount > 0) {
-        return a.tracking.unreadCount > b.tracking.unreadCount ? -1 : 1;
+      if (stats.a.unread > 0 || stats.b.unread > 0) {
+        return stats.a.unread > stats.b.unread ? -1 : 1;
       }
 
       return a.slug?.localeCompare?.(b.slug);
@@ -232,14 +245,30 @@ export default class ChatChannelsManager extends Service {
         return -1;
       }
 
-      if (a.tracking.unreadCount === b.tracking.unreadCount) {
-        return new Date(a.lastMessage.createdAt) >
-          new Date(b.lastMessage.createdAt)
+      if (
+        a.tracking.unreadCount + a.tracking.watchedThreadsUnreadCount > 0 ||
+        b.tracking.unreadCount + b.tracking.watchedThreadsUnreadCount > 0
+      ) {
+        return a.tracking.unreadCount + a.tracking.watchedThreadsUnreadCount >
+          b.tracking.unreadCount + b.tracking.watchedThreadsUnreadCount
           ? -1
           : 1;
-      } else {
-        return a.tracking.unreadCount > b.tracking.unreadCount ? -1 : 1;
       }
+
+      if (
+        a.threadsManager.unreadThreadCount > 0 ||
+        b.threadsManager.unreadThreadCount > 0
+      ) {
+        return a.threadsManager.unreadThreadCount >
+          b.threadsManager.unreadThreadCount
+          ? -1
+          : 1;
+      }
+
+      return new Date(a.lastMessage.createdAt) >
+        new Date(b.lastMessage.createdAt)
+        ? -1
+        : 1;
     });
   }
 }
diff --git a/plugins/chat/spec/fabricators/chat_fabricator.rb b/plugins/chat/spec/fabricators/chat_fabricator.rb
index ee32819a44a..4e1cd9d4b91 100644
--- a/plugins/chat/spec/fabricators/chat_fabricator.rb
+++ b/plugins/chat/spec/fabricators/chat_fabricator.rb
@@ -220,7 +220,12 @@ Fabricator(:chat_thread, class_name: "Chat::Thread") do
     thread.channel = original_message.chat_channel
   end
 
-  transient :with_replies, :channel, :original_message_user, :old_om, use_service: false
+  transient :with_replies,
+            :channel,
+            :original_message_user,
+            :old_om,
+            use_service: false,
+            notification_level: :tracking
 
   original_message do |attrs|
     Fabricate(
@@ -239,7 +244,7 @@ Fabricator(:chat_thread, class_name: "Chat::Thread") do
     attrs[:created_at] = 1.week.ago if transients[:old_om]
 
     thread.original_message.update!(**attrs)
-    thread.add(thread.original_message_user)
+    thread.add(thread.original_message_user, notification_level: transients[:notification_level])
 
     if transients[:with_replies]
       Fabricate
diff --git a/plugins/chat/spec/system/list_channels/drawer_spec.rb b/plugins/chat/spec/system/list_channels/drawer_spec.rb
index 1a27e4a27fb..757d76baad4 100644
--- a/plugins/chat/spec/system/list_channels/drawer_spec.rb
+++ b/plugins/chat/spec/system/list_channels/drawer_spec.rb
@@ -36,8 +36,20 @@ RSpec.describe "List channels | Drawer", type: :system do
     context "when multiple channels are present" do
       fab!(:channel_1) { Fabricate(:category_channel, name: "a channel") }
       fab!(:channel_2) { Fabricate(:category_channel, name: "b channel") }
-      fab!(:channel_3) { Fabricate(:category_channel, name: "c channel") }
+      fab!(:channel_3) { Fabricate(:category_channel, name: "c channel", threading_enabled: true) }
       fab!(:channel_4) { Fabricate(:category_channel, name: "d channel") }
+      fab!(:message) do
+        Fabricate(:chat_message, chat_channel: channel_3, user: current_user, use_service: true)
+      end
+      fab!(:thread) do
+        Fabricate(
+          :chat_thread,
+          channel: channel_3,
+          original_message: message,
+          with_replies: 2,
+          use_service: true,
+        )
+      end
 
       before do
         channel_1.add(current_user)
@@ -46,32 +58,31 @@ RSpec.describe "List channels | Drawer", type: :system do
         channel_4.add(current_user)
       end
 
-      it "sorts them by urgent, unread, then by slug" do
+      it "sorts them by urgent, unread messages or threads, then by slug" do
         drawer_page.visit_index
 
         Fabricate(
           :chat_message,
-          chat_channel: channel_1,
-          created_at: 5.minutes.ago,
-          use_service: true,
-        )
-        Fabricate(
-          :chat_message,
-          chat_channel: channel_2,
-          created_at: 2.minutes.ago,
-          use_service: true,
-        )
-        Fabricate(
-          :chat_message,
-          chat_channel: channel_3,
+          chat_channel: channel_4,
           message: "@#{current_user.username}",
           use_service: true,
         )
+
+        expect(drawer_page).to have_channel_at_position(channel_4, 1)
+        expect(drawer_page).to have_channel_at_position(channel_3, 2)
+        expect(drawer_page).to have_channel_at_position(channel_1, 3)
+        expect(drawer_page).to have_channel_at_position(channel_2, 4)
+      end
+
+      it "sorts by slug when multiple channels have the same unread count" do
+        drawer_page.visit_index
+        Fabricate(:chat_message, chat_channel: channel_2, use_service: true)
         Fabricate(:chat_message, chat_channel: channel_4, use_service: true)
 
-        expect(drawer_page).to have_channel_at_position(channel_3, 1)
-        expect(drawer_page).to have_channel_at_position(channel_1, 2)
-        expect(drawer_page).to have_channel_at_position(channel_2, 3)
+        expect(drawer_page).to have_channel_at_position(channel_2, 1)
+        expect(drawer_page).to have_channel_at_position(channel_3, 2)
+        expect(drawer_page).to have_channel_at_position(channel_4, 3)
+        expect(drawer_page).to have_channel_at_position(channel_1, 4)
       end
     end
   end
@@ -108,19 +119,71 @@ RSpec.describe "List channels | Drawer", type: :system do
 
     context "when multiple channels are present" do
       fab!(:user_1) { Fabricate(:user) }
+      fab!(:user_2) { Fabricate(:user) }
+      fab!(:user_3) { Fabricate(:user) }
       fab!(:dm_channel_1) { Fabricate(:direct_message_channel, users: [current_user]) }
       fab!(:dm_channel_2) { Fabricate(:direct_message_channel, users: [current_user, user_1]) }
-
-      before do
-        Fabricate(:chat_message, chat_channel: dm_channel_2, user: user_1, use_service: true)
-      end
+      fab!(:dm_channel_3) { Fabricate(:direct_message_channel, users: [current_user, user_2]) }
+      fab!(:dm_channel_4) { Fabricate(:direct_message_channel, users: [current_user, user_3]) }
 
       it "sorts them by latest activity" do
         drawer_page.visit_index
         drawer_page.click_direct_messages
 
+        Fabricate(:chat_message, chat_channel: dm_channel_2, user: user_1, use_service: true)
+
+        # last message was read but the created at date is used for sorting
+        message =
+          Fabricate(:chat_message, chat_channel: dm_channel_4, user: user_3, use_service: true)
+        dm_channel_4.membership_for(current_user).mark_read!(message.id)
+
         expect(drawer_page).to have_channel_at_position(dm_channel_2, 1)
-        expect(drawer_page).to have_channel_at_position(dm_channel_1, 2)
+        expect(drawer_page).to have_urgent_channel(dm_channel_2)
+
+        expect(drawer_page).to have_channel_at_position(dm_channel_4, 2)
+        expect(drawer_page).to have_channel_at_position(dm_channel_1, 3)
+        expect(drawer_page).to have_channel_at_position(dm_channel_3, 4)
+      end
+
+      it "sorts channels with threads by urgency" do
+        drawer_page.visit_index
+        drawer_page.click_direct_messages
+
+        Fabricate(
+          :chat_thread,
+          notification_level: :watching,
+          original_message:
+            Fabricate(
+              :chat_message,
+              chat_channel: dm_channel_4,
+              user: current_user,
+              use_service: true,
+            ),
+          with_replies: 2,
+          use_service: true,
+        )
+
+        Fabricate(
+          :chat_thread,
+          original_message:
+            Fabricate(
+              :chat_message,
+              chat_channel: dm_channel_3,
+              user: current_user,
+              use_service: true,
+            ),
+          with_replies: 2,
+          use_service: true,
+        )
+
+        expect(drawer_page).to have_channel_at_position(dm_channel_4, 1)
+        expect(drawer_page).to have_urgent_channel(dm_channel_4)
+
+        expect(drawer_page).to have_channel_at_position(dm_channel_3, 2)
+        expect(drawer_page).to have_unread_channel(dm_channel_3)
+
+        expect(drawer_page).to have_channel_at_position(dm_channel_1, 3)
+        expect(drawer_page).to have_channel_at_position(dm_channel_2, 4)
       end
     end
   end
diff --git a/plugins/chat/spec/system/page_objects/chat/components/channels_index.rb b/plugins/chat/spec/system/page_objects/chat/components/channels_index.rb
index 342daa5ee88..f61b651ce86 100644
--- a/plugins/chat/spec/system/page_objects/chat/components/channels_index.rb
+++ b/plugins/chat/spec/system/page_objects/chat/components/channels_index.rb
@@ -37,9 +37,17 @@ module PageObjects
           has_no_css?(channel_row_selector(channel))
         end
 
-        def has_unread_channel?(channel, count: nil, wait: Capybara.default_max_wait_time)
+        def has_unread_channel?(
+          channel,
+          count: nil,
+          urgent: false,
+          wait: Capybara.default_max_wait_time
+        )
           unread_indicator_selector =
             "#{channel_row_selector(channel)} .chat-channel-unread-indicator"
+
+          unread_indicator_selector += ".-urgent" if urgent
+
           has_css?(unread_indicator_selector) &&
             if count
               has_css?(
diff --git a/plugins/chat/spec/system/page_objects/chat_drawer/chat_drawer.rb b/plugins/chat/spec/system/page_objects/chat_drawer/chat_drawer.rb
index 3109b5160d9..a10d8503381 100644
--- a/plugins/chat/spec/system/page_objects/chat_drawer/chat_drawer.rb
+++ b/plugins/chat/spec/system/page_objects/chat_drawer/chat_drawer.rb
@@ -70,6 +70,10 @@ module PageObjects
         channels_index.has_no_unread_channel?(channel)
       end
 
+      def has_urgent_channel?(channel)
+        channels_index.has_unread_channel?(channel, urgent: true)
+      end
+
       def has_user_threads_section?
         has_css?("#c-footer-threads")
       end