I can narrow it down more, in this Playground it doesn't work if you modify the state from inside service.svelte.js but if you move the interval inside NestedComponent.svelte if statement works.

That is not how to set context when mounting components dynamically.

  const stateObject = $state({
  	showText: true
  });
- setContext('stateContext', stateObject);
  mount(NestedComponent, {
  	target,
  	props: {},
+  	context: new Map([['stateContext', stateObject]]),
  });

If you want to pass on existing contexts, use getAllContexts and merge that with new contents. Also note that context functions should only be called during component initialization so if you dynamically mount components later, you often have to get context data a lot earlier and store it somewhere to pass it on.

(By the way, you overwrote the state of the original reproduction, so it is unclear what the original issue looked like. I would generally recommend including code in the issue rather than just linking to the playground.)

That is not how to set context when mounting components dynamically.

const stateObject = $state({
showText: true
});

• setContext('stateContext', stateObject);
  mount(NestedComponent, {
  target,
  props: {},

• context: new Map([['stateContext', stateObject]]),
  
  });
  If you want to pass on existing contexts, use getAllContexts and merge that with new contents.

(By the way, you overwrote the state of the original reproduction, so it is unclear what the original issue looked like. I would generally recommend including code in the issue rather than just linking to the playground.)

My bad for accidentally overwriting, reverted to the example!

And here is the code:

App.svelte

<script>
	import { setContext, getContext, onMount } from 'svelte';
	import { contextTest } from './service.svelte.js';
	
	const stateObjectFromContext = getContext('stateContext')
	let element = undefined

	onMount(() => {
		contextTest(element)
	})
</script>

<div bind:this={element}></div>

service.svelte.js

import { setContext, getContext, mount } from 'svelte';
import NestedComponent from './NestedComponent.svelte'

export const contextTest = (target) => {
		const stateObject = $state({
			showText: true
		})
		mount(NestedComponent, {target, context: new Map([['stateContext', stateObject]]), props: {}})
		setInterval(() => {
			stateObject.showText = !stateObject.showText
		}, 1000)
}

NestedComponent.svelte

<script>
	import { setContext, getContext } from 'svelte';
	import { ContextTest } from './service.svelte.js';

	const stateObjectFromContext = getContext('stateContext')
</script>
<p>Following text is inside an 'if' statement and should only ever be able to show 'true'</p>

{#if stateObjectFromContext.showText === true}
 <h1>{stateObjectFromContext.showText}</h1>
{/if}

With your suggestion it still does not work for me unfortunately.

Strange bug. Adding an $inspect(stateObjectFromContext); also seems to fix the #if but the inspect does not track any of the changes to the object (only showing the init entry)...

Wrapping mount in $effect fixes the issue. And creating the stateObject not during onMount, e.g. in <script>, also fixes.

I don't think adding another $effect should be necessary.

Doing some playground bisection, the issue seems to have been introduced in v.5.24.0

Playground @ 5.23.2
Playground @ 5.24.0

Maybe it has to do with this change:

• feat: allow state created in deriveds/effects to be written/read locally without self-invalidation #15553

Seen some other issues referencing that in particular.

The commit that introduced the issue is:

fix: don't depend on deriveds created inside the current reaction

Confirmed that this is due to #15553, the wrong effect is set as active so updates are not notified.

Update: The problem is that reaction_sources is pushed to, and then in get it says "oh there's the same signal in reaction_sources so I'm gonna skip it", even though we're not executed in the context of the reaction the signal was created in. So the check needs to be enhanced to see if we're inside the same reaction.