diff --git a/packages/http-client/__tests__/proxy.test.ts b/packages/http-client/__tests__/proxy.test.ts
index 01888412..fe29b6b1 100644
--- a/packages/http-client/__tests__/proxy.test.ts
+++ b/packages/http-client/__tests__/proxy.test.ts
@@ -307,6 +307,18 @@ describe('proxy', () => {
     console.log(agent)
     expect(agent instanceof ProxyAgent).toBe(true)
   })
+
+  it('proxyAuth is set in tunnel agent when authentication is provided with URIencoding', async () => {
+    process.env['https_proxy'] =
+      'http://user%40github.com:p%40ssword@127.0.0.1:8080'
+    const httpClient = new httpm.HttpClient()
+    const agent: any = httpClient.getAgent('https://some-url')
+    // eslint-disable-next-line no-console
+    console.log(agent)
+    expect(agent.proxyOptions.host).toBe('127.0.0.1')
+    expect(agent.proxyOptions.port).toBe('8080')
+    expect(agent.proxyOptions.proxyAuth).toBe('user@github.com:p@ssword')
+  })
 })
 
 function _clearVars(): void {
diff --git a/packages/http-client/src/proxy.ts b/packages/http-client/src/proxy.ts
index 32afce6a..3a9c6834 100644
--- a/packages/http-client/src/proxy.ts
+++ b/packages/http-client/src/proxy.ts
@@ -15,10 +15,10 @@ export function getProxyUrl(reqUrl: URL): URL | undefined {
 
   if (proxyVar) {
     try {
-      return new URL(proxyVar)
+      return new DecodedURL(proxyVar)
     } catch {
       if (!proxyVar.startsWith('http://') && !proxyVar.startsWith('https://'))
-        return new URL(`http://${proxyVar}`)
+        return new DecodedURL(`http://${proxyVar}`)
     }
   } else {
     return undefined
@@ -87,3 +87,22 @@ function isLoopbackAddress(host: string): boolean {
     hostLower.startsWith('[0:0:0:0:0:0:0:1]')
   )
 }
+
+class DecodedURL extends URL {
+  private _decodedUsername: string
+  private _decodedPassword: string
+
+  constructor(url: string | URL, base?: string | URL) {
+    super(url, base)
+    this._decodedUsername = decodeURIComponent(super.username)
+    this._decodedPassword = decodeURIComponent(super.password)
+  }
+
+  get username(): string {
+    return this._decodedUsername
+  }
+
+  get password(): string {
+    return this._decodedPassword
+  }
+}