diff --git a/changelog/unreleased/enhancement-add-pasword-protected-folders-app.md b/changelog/unreleased/enhancement-add-pasword-protected-folders-app.md
new file mode 100644
index 00000000000..bbf59ce38bd
--- /dev/null
+++ b/changelog/unreleased/enhancement-add-pasword-protected-folders-app.md
@@ -0,0 +1,6 @@
+Enhancement: Add password protected folders app
+
+We've added a new application called "Password protected folders". This application allows users to create new folders that are accessible only by entering a password.
+
+https://github.com/owncloud/web/pull/12137
+https://github.com/owncloud/web/issues/12039
diff --git a/dev/docker/ocis.web.config.json b/dev/docker/ocis.web.config.json
index eb43326cc22..492e81921ad 100644
--- a/dev/docker/ocis.web.config.json
+++ b/dev/docker/ocis.web.config.json
@@ -22,6 +22,7 @@
     "epub-reader",
     "app-store",
     "activities",
-    "preview"
+    "preview",
+    "password-protected-folders"
   ]
 }
diff --git a/packages/web-app-password-protected-folders/README.md b/packages/web-app-password-protected-folders/README.md
new file mode 100644
index 00000000000..52ce620c023
--- /dev/null
+++ b/packages/web-app-password-protected-folders/README.md
@@ -0,0 +1,20 @@
+# web-app-password-protected-folders
+
+This web extension enhances the oCIS platform by allowing users to create password-protected folders. It provides an additional layer of security for sensitive or confidential information stored within oCIS.
+
+## Features
+
+- 🔒 Create password-protected folders within oCIS
+- 🔑 Set unique passwords for each protected folder
+- 🎨 Seamless integration with the oCIS user interface
+
+## Usage
+
+Once the extension is installed, users can create password-protected folders by following these steps:
+
+1. Log in to your oCIS instance.
+2. Navigate to the folder where you want to create a password-protected subfolder.
+3. Click the "New" button and select "Password Protected Folder."
+4. Enter a name for the folder and set a unique password.
+5. Click "Create" to create the password-protected folder.
+6. To access the protected folder, users will be prompted to enter the corresponding password.
diff --git a/packages/web-app-password-protected-folders/l10n/.tx/config b/packages/web-app-password-protected-folders/l10n/.tx/config
new file mode 100644
index 00000000000..d7f17ed75cb
--- /dev/null
+++ b/packages/web-app-password-protected-folders/l10n/.tx/config
@@ -0,0 +1,10 @@
+[main]
+host = https://www.transifex.com
+
+[o:owncloud-org:p:owncloud-web:r:password-protected-folders]
+file_filter = locale/<lang>/app.po
+minimum_perc = 0
+resource_name = web-password-protected-folders
+source_file = template.pot
+source_lang = en
+type = PO
diff --git a/packages/web-app-password-protected-folders/l10n/translations.json b/packages/web-app-password-protected-folders/l10n/translations.json
new file mode 100644
index 00000000000..0967ef424bc
--- /dev/null
+++ b/packages/web-app-password-protected-folders/l10n/translations.json
@@ -0,0 +1 @@
+{}
diff --git a/packages/web-app-password-protected-folders/package.json b/packages/web-app-password-protected-folders/package.json
new file mode 100644
index 00000000000..8d41f9dfe3a
--- /dev/null
+++ b/packages/web-app-password-protected-folders/package.json
@@ -0,0 +1,24 @@
+{
+  "name": "web-app-password-protected-folders",
+  "version": "0.4.0",
+  "private": true,
+  "description": "ownCloud Web password protected folders",
+  "license": "AGPL-3.0",
+  "type": "module",
+  "scripts": {
+    "build": "pnpm vite build",
+    "build:w": "pnpm vite build --watch --mode development",
+    "check:types": "vue-tsc --noEmit",
+    "test:unit": "NODE_OPTIONS=--unhandled-rejections=throw vitest"
+  },
+  "devDependencies": {
+    "@ownclouders/web-client": "workspace:*",
+    "@ownclouders/web-pkg": "workspace:*",
+    "@ownclouders/web-test-helpers": "workspace:*",
+    "@vue/test-utils": "^2.4.6",
+    "uuid": "^11.0.0",
+    "vitest-mock-extended": "2.0.2",
+    "vue": "^3.4.21",
+    "vue3-gettext": "^2.4.0"
+  }
+}
diff --git a/packages/web-app-password-protected-folders/public/manifest.json b/packages/web-app-password-protected-folders/public/manifest.json
new file mode 100644
index 00000000000..abfebe361e1
--- /dev/null
+++ b/packages/web-app-password-protected-folders/public/manifest.json
@@ -0,0 +1,3 @@
+{
+  "entrypoint": "password-protected-folders.js"
+}
diff --git a/packages/web-app-password-protected-folders/src/components/CreateFolderModal.vue b/packages/web-app-password-protected-folders/src/components/CreateFolderModal.vue
new file mode 100644
index 00000000000..34fbffd85fe
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/components/CreateFolderModal.vue
@@ -0,0 +1,70 @@
+<template>
+  <form autocomplete="off" @submit.prevent="emit('confirm')">
+    <oc-text-input
+      id="input-folder-name"
+      v-model="formData.folderName"
+      :label="$gettext('Folder name')"
+    />
+    <oc-text-input
+      id="input-folder-password"
+      v-model="formData.password"
+      type="password"
+      :label="$gettext('Password')"
+      class="oc-mt-s"
+    />
+    <input type="submit" class="oc-hidden" />
+  </form>
+</template>
+
+<script lang="ts" setup>
+import { useMessages, useResourcesStore, useSpacesStore } from '@ownclouders/web-pkg'
+import { computed, reactive, unref, watch } from 'vue'
+import { useGettext } from 'vue3-gettext'
+import { useCreateFileHandler } from '../composables/useCreateFileHandler'
+
+const emit = defineEmits<{
+  confirm: []
+  'update:confirmDisabled': [isDisabled: boolean]
+}>()
+
+const { $gettext } = useGettext()
+const { showErrorMessage } = useMessages()
+const { createFileHandler } = useCreateFileHandler()
+const { currentFolder } = useResourcesStore()
+const { currentSpace } = useSpacesStore()
+
+const formData = reactive({
+  folderName: '',
+  password: ''
+})
+
+const isFormValid = computed(() => formData.folderName !== '' && formData.password !== '')
+
+const onConfirm = async () => {
+  if (!unref(isFormValid)) {
+    return Promise.reject()
+  }
+
+  try {
+    await createFileHandler({
+      fileName: formData.folderName,
+      currentFolder: unref(currentFolder),
+      space: unref(currentSpace),
+      password: formData.password
+    })
+  } catch (error) {
+    console.error(error)
+    showErrorMessage({ title: $gettext('Failed to create folder'), errors: [error] })
+  }
+}
+
+watch(
+  isFormValid,
+  (isValid) => {
+    emit('update:confirmDisabled', !isValid)
+  },
+  { immediate: true }
+)
+
+defineExpose({ onConfirm })
+</script>
diff --git a/packages/web-app-password-protected-folders/src/composables/useCreateFileHandler.ts b/packages/web-app-password-protected-folders/src/composables/useCreateFileHandler.ts
new file mode 100644
index 00000000000..7b9855d8867
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/composables/useCreateFileHandler.ts
@@ -0,0 +1,45 @@
+import { Resource, SpaceResource, urlJoin } from '@ownclouders/web-client'
+import { SharingLinkType } from '@ownclouders/web-client/graph/generated'
+import { useClientService, useResourcesStore, useSharesStore } from '@ownclouders/web-pkg'
+import { unref } from 'vue'
+
+export const useCreateFileHandler = () => {
+  const clientService = useClientService()
+  const { upsertResource } = useResourcesStore()
+  const { addLink } = useSharesStore()
+
+  const createFileHandler = async ({
+    fileName,
+    space,
+    currentFolder,
+    password
+  }: {
+    fileName: string
+    space: SpaceResource
+    currentFolder: Resource
+    password: string
+  }) => {
+    if (fileName === '') {
+      return
+    }
+
+    const folderPath = '/.' + fileName
+
+    const folder = await clientService.webdav.createFolder(unref(space), { path: folderPath })
+    upsertResource(folder)
+
+    await addLink({
+      clientService,
+      space,
+      resource: folder,
+      options: { password, type: SharingLinkType.Edit }
+    })
+
+    const path = urlJoin(currentFolder.path, fileName + '.psec')
+
+    const file = await clientService.webdav.putFileContents(unref(space), { path })
+    upsertResource(file)
+  }
+
+  return { createFileHandler }
+}
diff --git a/packages/web-app-password-protected-folders/src/composables/useCustomHandler.ts b/packages/web-app-password-protected-folders/src/composables/useCustomHandler.ts
new file mode 100644
index 00000000000..1c1f94f5a91
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/composables/useCustomHandler.ts
@@ -0,0 +1,18 @@
+import { useModals } from '@ownclouders/web-pkg'
+import { useGettext } from 'vue3-gettext'
+import CreateFolderModal from '../components/CreateFolderModal.vue'
+
+export const useCustomHandler = () => {
+  const { dispatchModal } = useModals()
+  const { $gettext } = useGettext()
+
+  const customHandler = () => {
+    dispatchModal({
+      title: $gettext('Create a new password protected folder'),
+      customComponent: CreateFolderModal,
+      confirmText: $gettext('Create')
+    })
+  }
+
+  return { customHandler }
+}
diff --git a/packages/web-app-password-protected-folders/src/composables/useExtensions.ts b/packages/web-app-password-protected-folders/src/composables/useExtensions.ts
new file mode 100644
index 00000000000..c8a3991e5bd
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/composables/useExtensions.ts
@@ -0,0 +1,16 @@
+import { ActionExtension } from '@ownclouders/web-pkg'
+import { computed, unref } from 'vue'
+import { useOpenFolderAction } from './useOpenFolderAction'
+
+export const useExtensions = () => {
+  const action = useOpenFolderAction()
+
+  const actionExtension = computed<ActionExtension>(() => ({
+    id: 'com.github.owncloud.web-extensions.password-protected-folders',
+    type: 'action',
+    extensionPointIds: ['global.files.context-actions', 'global.files.default-actions'],
+    action: unref(action)
+  }))
+
+  return computed(() => [unref(actionExtension)])
+}
diff --git a/packages/web-app-password-protected-folders/src/composables/useOpenFolderAction.ts b/packages/web-app-password-protected-folders/src/composables/useOpenFolderAction.ts
new file mode 100644
index 00000000000..bb154ea2c3b
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/composables/useOpenFolderAction.ts
@@ -0,0 +1,29 @@
+import { FileAction } from '@ownclouders/web-pkg'
+import { computed } from 'vue'
+import { useGettext } from 'vue3-gettext'
+
+export const useOpenFolderAction = () => {
+  const { $gettext } = useGettext()
+
+  const action = computed<FileAction>(() => ({
+    name: 'open-password-protected-folder',
+    icon: 'external-link',
+    handler: () => {
+      // TODO: add handler
+      console.warn('NOT IMPLEMENTED')
+    },
+    label: () => $gettext('Open folder'),
+    isDisabled: () => false,
+    isVisible: ({ resources }) => {
+      if (resources.length !== 1) {
+        return false
+      }
+
+      return resources[0].extension === 'psec'
+    },
+    componentType: 'button',
+    class: 'oc-files-actions-open-password-protected-folder'
+  }))
+
+  return action
+}
diff --git a/packages/web-app-password-protected-folders/src/index.ts b/packages/web-app-password-protected-folders/src/index.ts
new file mode 100644
index 00000000000..2d66bec5edc
--- /dev/null
+++ b/packages/web-app-password-protected-folders/src/index.ts
@@ -0,0 +1,29 @@
+import { useGettext } from 'vue3-gettext'
+import translations from '../l10n/translations.json'
+import { defineWebApplication } from '@ownclouders/web-pkg'
+import { useExtensions } from './composables/useExtensions'
+import { useCustomHandler } from './composables/useCustomHandler'
+
+export default defineWebApplication({
+  setup() {
+    const { $gettext } = useGettext()
+    const extensions = useExtensions()
+    const { customHandler } = useCustomHandler()
+
+    return {
+      appInfo: {
+        name: $gettext('Password Protected Folders'),
+        id: 'password-protected-folders',
+        extensions: [
+          {
+            newFileMenu: { menuTitle: () => $gettext('Password Protected Folder') },
+            extension: 'psec',
+            customHandler
+          }
+        ]
+      },
+      translations,
+      extensions
+    }
+  }
+})
diff --git a/packages/web-app-password-protected-folders/tests/unit/components/CreateFolderModal.spec.ts b/packages/web-app-password-protected-folders/tests/unit/components/CreateFolderModal.spec.ts
new file mode 100644
index 00000000000..1fb846da1f5
--- /dev/null
+++ b/packages/web-app-password-protected-folders/tests/unit/components/CreateFolderModal.spec.ts
@@ -0,0 +1,69 @@
+import { defaultComponentMocks, defaultPlugins, shallowMount } from '@ownclouders/web-test-helpers'
+import CreateFolderModal from '../../../src/components/CreateFolderModal.vue'
+import { useCreateFileHandler } from '../../../src/composables/useCreateFileHandler'
+import { mock } from 'vitest-mock-extended'
+import { Resource, SpaceResource } from '@ownclouders/web-client'
+import { VueWrapper } from '@vue/test-utils'
+
+vi.mock('../../../src/composables/useCreateFileHandler', () => ({
+  useCreateFileHandler: vi.fn().mockReturnValue({ createFileHandler: vi.fn() })
+}))
+
+const currentFolder = mock<Resource>()
+const currentSpace = mock<SpaceResource>()
+
+const SELECTORS = Object.freeze({
+  inputFolderName: '#input-folder-name',
+  inputFolderPassword: '#input-folder-password'
+})
+
+describe('CreateFolderModal', () => {
+  it('should call "createFileHandler" when form is valid', () => {
+    const { wrapper } = getWrapper()
+
+    const folderNameInput = wrapper.findComponent(SELECTORS.inputFolderName) as VueWrapper
+    const passwordInput = wrapper.findComponent(SELECTORS.inputFolderPassword) as VueWrapper
+
+    folderNameInput.vm.$emit('update:modelValue', 'name')
+    passwordInput.vm.$emit('update:modelValue', 'password')
+
+    wrapper.vm.onConfirm()
+
+    expect(useCreateFileHandler().createFileHandler).toHaveBeenCalledWith({
+      fileName: 'name',
+      password: 'password',
+      space: currentSpace,
+      currentFolder
+    })
+  })
+
+  it('should not call "createFileHandler" when form is invalid', () => {
+    const { wrapper } = getWrapper()
+
+    const folderNameInput = wrapper.findComponent(SELECTORS.inputFolderName) as VueWrapper
+    folderNameInput.vm.$emit('update:modelValue', 'name')
+
+    expect(wrapper.vm.onConfirm()).rejects.toThrow()
+    expect(useCreateFileHandler().createFileHandler).not.toHaveBeenCalled()
+  })
+})
+
+function getWrapper() {
+  const mocks = defaultComponentMocks()
+
+  return {
+    wrapper: shallowMount(CreateFolderModal, {
+      global: {
+        plugins: defaultPlugins({
+          piniaOptions: {
+            resourcesStore: { currentFolder },
+            spacesState: { currentSpace }
+          }
+        }),
+        mocks,
+        provide: mocks
+      }
+    }),
+    mocks
+  }
+}
diff --git a/packages/web-app-password-protected-folders/tests/unit/composables/useCreateFileHandler.spec.ts b/packages/web-app-password-protected-folders/tests/unit/composables/useCreateFileHandler.spec.ts
new file mode 100644
index 00000000000..70ad4b0150b
--- /dev/null
+++ b/packages/web-app-password-protected-folders/tests/unit/composables/useCreateFileHandler.spec.ts
@@ -0,0 +1,65 @@
+import { defaultComponentMocks, getComposableWrapper } from '@ownclouders/web-test-helpers'
+import { useCreateFileHandler } from '../../../src/composables/useCreateFileHandler'
+import { mock } from 'vitest-mock-extended'
+import { Resource, SpaceResource } from '@ownclouders/web-client'
+import { useSharesStore } from '@ownclouders/web-pkg'
+import { SharingLinkType } from '@ownclouders/web-client/graph/generated'
+
+const space = mock<SpaceResource>()
+const currentFolder = mock<Resource>({ path: '/current/folder' })
+const createdFolder = mock<Resource>()
+
+describe('createFileHandler', () => {
+  it('should create all necessary resources and links', () => {
+    getWrapper({
+      async setup(instance, mocks) {
+        const { addLink } = useSharesStore()
+
+        await instance.createFileHandler({
+          fileName: 'protected',
+          space,
+          currentFolder,
+          password: 'Pass$123'
+        })
+
+        expect(mocks.$clientService.webdav.createFolder).toHaveBeenCalledWith(space, {
+          path: '/.protected'
+        })
+        expect(addLink).toHaveBeenCalledWith({
+          clientService: mocks.$clientService,
+          space,
+          resource: createdFolder,
+          options: { password: 'Pass$123', type: SharingLinkType.Edit }
+        })
+        expect(mocks.$clientService.webdav.putFileContents).toHaveBeenCalledWith(space, {
+          path: '/current/folder/protected.psec'
+        })
+      }
+    })
+  })
+})
+
+function getWrapper({
+  setup
+}: {
+  setup: (
+    instance: ReturnType<typeof useCreateFileHandler>,
+    mocks: ReturnType<typeof defaultComponentMocks>
+  ) => void
+}) {
+  const mocks = defaultComponentMocks()
+  mocks.$clientService.webdav.createFolder.mockResolvedValue(createdFolder)
+
+  return {
+    wrapper: getComposableWrapper(
+      () => {
+        const instance = useCreateFileHandler()
+        setup(instance, mocks)
+      },
+      {
+        mocks,
+        provide: mocks
+      }
+    )
+  }
+}
diff --git a/pnpm-lock.yaml b/pnpm-lock.yaml
index efed6d5ae53..9ebb6ed7740 100644
--- a/pnpm-lock.yaml
+++ b/pnpm-lock.yaml
@@ -773,6 +773,33 @@ importers:
         specifier: 3.24.1
         version: 3.24.1
 
+  packages/web-app-password-protected-folders:
+    devDependencies:
+      '@ownclouders/web-client':
+        specifier: workspace:*
+        version: link:../web-client
+      '@ownclouders/web-pkg':
+        specifier: workspace:*
+        version: link:../web-pkg
+      '@ownclouders/web-test-helpers':
+        specifier: workspace:*
+        version: link:../web-test-helpers
+      '@vue/test-utils':
+        specifier: ^2.4.6
+        version: 2.4.6
+      uuid:
+        specifier: ^11.0.0
+        version: 11.0.5
+      vitest-mock-extended:
+        specifier: 2.0.2
+        version: 2.0.2(typescript@5.6.3)(vitest@2.1.6(@types/node@22.9.0)(happy-dom@16.7.2)(jiti@1.21.0)(jsdom@26.0.0)(sass@1.81.0)(terser@5.36.0)(yaml@2.6.0))
+      vue:
+        specifier: ^3.4.21
+        version: 3.5.13(typescript@5.6.3)
+      vue3-gettext:
+        specifier: ^2.4.0
+        version: 2.4.0(patch_hash=x32qkm4z6srz5xuveescagpdyu)(@vue/compiler-sfc@3.5.13)(vue@3.5.13(typescript@5.6.3))
+
   packages/web-app-pdf-viewer:
     dependencies:
       '@ownclouders/web-pkg':
@@ -10172,7 +10199,7 @@ snapshots:
       '@cucumber/ci-environment': 9.1.0
       '@cucumber/cucumber-expressions': 16.1.1
       '@cucumber/gherkin': 26.0.3
-      '@cucumber/gherkin-streams': 5.0.1(@cucumber/gherkin@26.0.3)(@cucumber/message-streams@4.0.1(@cucumber/messages@21.0.1))(@cucumber/messages@21.0.1)
+      '@cucumber/gherkin-streams': 5.0.1(@cucumber/gherkin@26.0.3)(@cucumber/message-streams@4.0.1(@cucumber/messages@27.0.2))(@cucumber/messages@21.0.1)
       '@cucumber/gherkin-utils': 8.0.2
       '@cucumber/html-formatter': 20.2.1(@cucumber/messages@21.0.1)
       '@cucumber/message-streams': 4.0.1(@cucumber/messages@21.0.1)
@@ -10210,7 +10237,7 @@ snapshots:
       yaml: 2.6.0
       yup: 0.32.11
 
-  '@cucumber/gherkin-streams@5.0.1(@cucumber/gherkin@26.0.3)(@cucumber/message-streams@4.0.1(@cucumber/messages@21.0.1))(@cucumber/messages@21.0.1)':
+  '@cucumber/gherkin-streams@5.0.1(@cucumber/gherkin@26.0.3)(@cucumber/message-streams@4.0.1(@cucumber/messages@27.0.2))(@cucumber/messages@21.0.1)':
     dependencies:
       '@cucumber/gherkin': 26.0.3
       '@cucumber/message-streams': 4.0.1(@cucumber/messages@21.0.1)