diff --git a/Makefile b/Makefile
index b3fbf4009a..40053db864 100644
--- a/Makefile
+++ b/Makefile
@@ -299,12 +299,12 @@ start-v2-test: zetanode
 ifdef UPGRADE_TEST_FROM_SOURCE
 zetanode-upgrade: zetanode
 	@echo "Building zetanode-upgrade from source"
-	$(DOCKER) build -t zetanode:old -f Dockerfile-localnet --target old-runtime-source --build-arg OLD_VERSION='release/v19' .
+	$(DOCKER) build -t zetanode:old -f Dockerfile-localnet --target old-runtime-source --build-arg OLD_VERSION='release/v20' .
 .PHONY: zetanode-upgrade
 else
 zetanode-upgrade: zetanode
 	@echo "Building zetanode-upgrade from binaries"
-	$(DOCKER) build -t zetanode:old -f Dockerfile-localnet --target old-runtime --build-arg OLD_VERSION='https://github.com/zeta-chain/node/releases/download/v19.1.1' .
+	$(DOCKER) build -t zetanode:old -f Dockerfile-localnet --target old-runtime --build-arg OLD_VERSION='https://github.com/zeta-chain/node/releases/download/v20.0.2' .
 .PHONY: zetanode-upgrade
 endif
 
diff --git a/changelog.md b/changelog.md
index 437b97382d..dc83cb839b 100644
--- a/changelog.md
+++ b/changelog.md
@@ -36,6 +36,7 @@
 * [2874](https://github.com/zeta-chain/node/pull/2874) - add support for multiple runs for precompile tests
 * [2895](https://github.com/zeta-chain/node/pull/2895) - add e2e test for bitcoin deposit and call
 * [2894](https://github.com/zeta-chain/node/pull/2894) - increase gas limit for TSS vote tx
+* [2932](https://github.com/zeta-chain/node/pull/2932) - add gateway upgrade as part of the upgrade test
 
 ### Fixes
 
diff --git a/cmd/zetae2e/local/local.go b/cmd/zetae2e/local/local.go
index ced848aadc..4a7fbef39c 100644
--- a/cmd/zetae2e/local/local.go
+++ b/cmd/zetae2e/local/local.go
@@ -46,6 +46,7 @@ const (
 	flagTestV2Migration   = "test-v2-migration"
 	flagSkipTrackerCheck  = "skip-tracker-check"
 	flagSkipPrecompiles   = "skip-precompiles"
+	flagUpgradeGateways   = "upgrade-gateways"
 )
 
 var (
@@ -83,6 +84,7 @@ func NewLocalCmd() *cobra.Command {
 	cmd.Flags().Bool(flagTestV2Migration, false, "set to true to run tests for v2 contracts migration test")
 	cmd.Flags().Bool(flagSkipTrackerCheck, false, "set to true to skip tracker check at the end of the tests")
 	cmd.Flags().Bool(flagSkipPrecompiles, false, "set to true to skip stateful precompiled contracts test")
+	cmd.Flags().Bool(flagUpgradeGateways, false, "set to true to upgrade gateways during setup for ZEVM and EVM")
 
 	return cmd
 }
@@ -112,6 +114,7 @@ func localE2ETest(cmd *cobra.Command, _ []string) {
 		testV2            = must(cmd.Flags().GetBool(flagTestV2))
 		testV2Migration   = must(cmd.Flags().GetBool(flagTestV2Migration))
 		skipPrecompiles   = must(cmd.Flags().GetBool(flagSkipPrecompiles))
+		upgradeGateways   = must(cmd.Flags().GetBool(flagUpgradeGateways))
 	)
 
 	logger := runner.NewLogger(verbose, color.FgWhite, "setup")
@@ -202,21 +205,26 @@ func localE2ETest(cmd *cobra.Command, _ []string) {
 		logger.Print("⚙️ setting up networks")
 		startTime := time.Now()
 
+		// TODO: merge v1 and v2 together
+		// https://github.com/zeta-chain/node/issues/2627
+
 		deployerRunner.SetupEVM(contractsDeployed, true)
 
-		if testV2 {
-			deployerRunner.SetupEVMV2()
-		}
+		deployerRunner.SetupEVMV2()
 
 		deployerRunner.SetZEVMSystemContracts()
 
-		if testV2 {
-			// NOTE: v2 (gateway) setup called here because system contract needs to be set first, then gateway, then zrc20
-			deployerRunner.SetZEVMContractsV2()
-		}
+		// NOTE: v2 (gateway) setup called here because system contract needs to be set first, then gateway, then zrc20
+		deployerRunner.SetZEVMContractsV2()
 
 		deployerRunner.SetZEVMZRC20s()
 
+		// Update the chain params to use v2 contract for ERC20Custody
+		// TODO: this function should be removed and the chain params should be directly set to use v2 contract
+		// https://github.com/zeta-chain/node/issues/2627
+		deployerRunner.UpdateChainParamsV2Contracts()
+		deployerRunner.ERC20CustodyAddr = deployerRunner.ERC20CustodyV2Addr
+
 		if testSolana {
 			deployerRunner.SetSolanaContracts(conf.AdditionalAccounts.UserSolana.SolanaPrivateKey.String())
 		}
@@ -404,10 +412,9 @@ func localE2ETest(cmd *cobra.Command, _ []string) {
 		eg.Go(tonTestRoutine(conf, deployerRunner, verbose, tonTests...))
 	}
 
-	if testV2 {
-		// update the ERC20 custody contract for v2 tests
-		// note: not run in testV2Migration because it is already run in the migration process
-		deployerRunner.UpdateChainParamsV2Contracts()
+	// upgrade gateways
+	if upgradeGateways {
+		deployerRunner.UpgradeGateways()
 	}
 
 	if testV2 || testV2Migration {
diff --git a/contrib/localnet/orchestrator/start-zetae2e.sh b/contrib/localnet/orchestrator/start-zetae2e.sh
index 9977b7dbd9..e7374216f3 100644
--- a/contrib/localnet/orchestrator/start-zetae2e.sh
+++ b/contrib/localnet/orchestrator/start-zetae2e.sh
@@ -258,9 +258,9 @@ if [ "$LOCALNET_MODE" == "upgrade" ]; then
   # When the upgrade height is greater than 100 for upgrade test, the Bitcoin tests have been run once, therefore the Bitcoin wallet is already set up
   # Use light flag to skip advanced tests
   if [ "$UPGRADE_HEIGHT" -lt 100 ]; then
-    zetae2e local $E2E_ARGS --skip-setup --config "$deployed_config_path" --light ${COMMON_ARGS}
+    zetae2e local $E2E_ARGS --skip-setup --config "$deployed_config_path" --light --test-v2 --upgrade-gateways ${COMMON_ARGS}
   else
-    zetae2e local $E2E_ARGS --skip-setup --config "$deployed_config_path" --skip-bitcoin-setup --light ${COMMON_ARGS}
+    zetae2e local $E2E_ARGS --skip-setup --config "$deployed_config_path" --skip-bitcoin-setup --light --test-v2 --upgrade-gateways ${COMMON_ARGS}
   fi
 
   ZETAE2E_EXIT_CODE=$?
diff --git a/e2e/runner/v2_gateway.go b/e2e/runner/v2_gateway.go
new file mode 100644
index 0000000000..2bede9e3fe
--- /dev/null
+++ b/e2e/runner/v2_gateway.go
@@ -0,0 +1,55 @@
+package runner
+
+import (
+	ethtypes "github.com/ethereum/go-ethereum/core/types"
+	"github.com/stretchr/testify/require"
+	"github.com/zeta-chain/protocol-contracts/v2/pkg/gatewayevm.sol"
+	"github.com/zeta-chain/protocol-contracts/v2/pkg/gatewayzevm.sol"
+
+	"github.com/zeta-chain/node/e2e/utils"
+)
+
+// UpgradeGateways upgrades the GatewayEVM and GatewayZEVM contracts
+// It deploy new gateway contract implementation with the current imported artifacts and upgrade the gateway contract
+func (r *E2ERunner) UpgradeGateways() {
+	r.UpgradeGatewayZEVM()
+	r.UpgradeGatewayEVM()
+}
+
+// UpgradeGatewayZEVM upgrades the GatewayZEVM contract
+func (r *E2ERunner) UpgradeGatewayZEVM() {
+	ensureTxReceipt := func(tx *ethtypes.Transaction, failMessage string) {
+		receipt := utils.MustWaitForTxReceipt(r.Ctx, r.ZEVMClient, tx, r.Logger, r.ReceiptTimeout)
+		r.requireTxSuccessful(receipt, failMessage+" tx hash: "+tx.Hash().Hex())
+	}
+
+	r.Logger.Info("Upgrading Gateway ZEVM contract")
+	// Deploy the new gateway contract implementation
+	newImplementationAddress, txDeploy, _, err := gatewayzevm.DeployGatewayZEVM(r.ZEVMAuth, r.ZEVMClient)
+	require.NoError(r, err)
+	ensureTxReceipt(txDeploy, "New GatewayZEVM implementation deployment failed")
+
+	// Upgrade
+	txUpgrade, err := r.GatewayZEVM.UpgradeToAndCall(r.ZEVMAuth, newImplementationAddress, []byte{})
+	require.NoError(r, err)
+	ensureTxReceipt(txUpgrade, "GatewayZEVM upgrade failed")
+}
+
+// UpgradeGatewayEVM upgrades the GatewayEVM contract
+func (r *E2ERunner) UpgradeGatewayEVM() {
+	ensureTxReceipt := func(tx *ethtypes.Transaction, failMessage string) {
+		receipt := utils.MustWaitForTxReceipt(r.Ctx, r.EVMClient, tx, r.Logger, r.ReceiptTimeout)
+		r.requireTxSuccessful(receipt, failMessage+" tx hash: "+tx.Hash().Hex())
+	}
+
+	r.Logger.Info("Upgrading Gateway EVM contract")
+	// Deploy the new gateway contract implementation
+	newImplementationAddress, txDeploy, _, err := gatewayevm.DeployGatewayEVM(r.EVMAuth, r.EVMClient)
+	require.NoError(r, err)
+	ensureTxReceipt(txDeploy, "New GatewayEVM implementation deployment failed")
+
+	// Upgrade
+	txUpgrade, err := r.GatewayEVM.UpgradeToAndCall(r.EVMAuth, newImplementationAddress, []byte{})
+	require.NoError(r, err)
+	ensureTxReceipt(txUpgrade, "GatewayEVM upgrade failed")
+}