diff --git a/packages/config-loader/src/sources/ObservableConfigProxy.ts b/packages/config-loader/src/sources/ObservableConfigProxy.ts
new file mode 100644
index 0000000000..59be836160
--- /dev/null
+++ b/packages/config-loader/src/sources/ObservableConfigProxy.ts
@@ -0,0 +1,140 @@
+/*
+ * Copyright 2023 The Backstage Authors
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *     http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ */
+
+import { Config, ConfigReader } from '@backstage/config';
+import { JsonValue } from '@backstage/types';
+
+export class ObservableConfigProxy implements Config {
+  private config: Config = new ConfigReader({});
+
+  private readonly subscribers: (() => void)[] = [];
+
+  static create(abortController: AbortController): ObservableConfigProxy {
+    return new ObservableConfigProxy(undefined, undefined, abortController);
+  }
+
+  private constructor(
+    private readonly parent?: ObservableConfigProxy,
+    private readonly parentKey?: string,
+    private readonly abortController?: AbortController,
+  ) {
+    if (parent && !parentKey) {
+      throw new Error('parentKey is required if parent is set');
+    }
+  }
+
+  setConfig(config: Config) {
+    if (this.parent) {
+      throw new Error('immutable');
+    }
+    this.config = config;
+    for (const subscriber of this.subscribers) {
+      try {
+        subscriber();
+      } catch (error) {
+        console.error(`Config subscriber threw error, ${error}`);
+      }
+    }
+  }
+
+  close() {
+    if (!this.abortController) {
+      throw new Error('Only the root config can be closed');
+    }
+    this.abortController.abort();
+  }
+
+  subscribe(onChange: () => void): { unsubscribe: () => void } {
+    if (this.parent) {
+      return this.parent.subscribe(onChange);
+    }
+
+    this.subscribers.push(onChange);
+    return {
+      unsubscribe: () => {
+        const index = this.subscribers.indexOf(onChange);
+        if (index >= 0) {
+          this.subscribers.splice(index, 1);
+        }
+      },
+    };
+  }
+
+  private select(required: true): Config;
+  private select(required: false): Config | undefined;
+  private select(required: boolean): Config | undefined {
+    if (this.parent && this.parentKey) {
+      if (required) {
+        return this.parent.select(true).getConfig(this.parentKey);
+      }
+      return this.parent.select(false)?.getOptionalConfig(this.parentKey);
+    }
+
+    return this.config;
+  }
+
+  has(key: string): boolean {
+    return this.select(false)?.has(key) ?? false;
+  }
+  keys(): string[] {
+    return this.select(false)?.keys() ?? [];
+  }
+  get<T = JsonValue>(key?: string): T {
+    return this.select(true).get(key);
+  }
+  getOptional<T = JsonValue>(key?: string): T | undefined {
+    return this.select(false)?.getOptional(key);
+  }
+  getConfig(key: string): Config {
+    return new ObservableConfigProxy(this, key);
+  }
+  getOptionalConfig(key: string): Config | undefined {
+    if (this.select(false)?.has(key)) {
+      return new ObservableConfigProxy(this, key);
+    }
+    return undefined;
+  }
+  getConfigArray(key: string): Config[] {
+    return this.select(true).getConfigArray(key);
+  }
+  getOptionalConfigArray(key: string): Config[] | undefined {
+    return this.select(false)?.getOptionalConfigArray(key);
+  }
+  getNumber(key: string): number {
+    return this.select(true).getNumber(key);
+  }
+  getOptionalNumber(key: string): number | undefined {
+    return this.select(false)?.getOptionalNumber(key);
+  }
+  getBoolean(key: string): boolean {
+    return this.select(true).getBoolean(key);
+  }
+  getOptionalBoolean(key: string): boolean | undefined {
+    return this.select(false)?.getOptionalBoolean(key);
+  }
+  getString(key: string): string {
+    return this.select(true).getString(key);
+  }
+  getOptionalString(key: string): string | undefined {
+    return this.select(false)?.getOptionalString(key);
+  }
+  getStringArray(key: string): string[] {
+    return this.select(true).getStringArray(key);
+  }
+  getOptionalStringArray(key: string): string[] | undefined {
+    return this.select(false)?.getOptionalStringArray(key);
+  }
+}