diff --git a/internal/configs/configmaps.go b/internal/configs/configmaps.go
index 7b07b19532e..fbcd63b68d2 100644
--- a/internal/configs/configmaps.go
+++ b/internal/configs/configmaps.go
@@ -3,8 +3,6 @@ package configs
 import (
 	"strings"
 
-	"github.com/nginxinc/kubernetes-ingress/internal/configs/version2"
-
 	"github.com/golang/glog"
 	v1 "k8s.io/api/core/v1"
 
@@ -68,20 +66,6 @@ func ParseConfigMap(cfgm *v1.ConfigMap, nginxPlus bool, hasAppProtect bool, hasA
 		cfgParams.ProxyPassHeaders = proxyPassHeaders
 	}
 
-	if proxySetHeaders, exists := GetMapKeyAsStringSlice(cfgm.Data, "proxy-set-headers", cfgm, ","); exists {
-		var headers []version2.Header
-		for _, headerAndValue := range proxySetHeaders {
-			parts := strings.SplitN(headerAndValue, " ", 2)
-			name := strings.TrimSpace(parts[0])
-			var value string
-			if len(parts) > 1 {
-				value = strings.TrimSpace(parts[1])
-			}
-			headers = append(headers, version2.Header{Name: name, Value: value})
-		}
-		cfgParams.ProxySetHeaders = headers
-	}
-
 	if clientMaxBodySize, exists := cfgm.Data["client-max-body-size"]; exists {
 		cfgParams.ClientMaxBodySize = clientMaxBodySize
 	}
diff --git a/internal/configs/version1/template_helper_test.go b/internal/configs/version1/template_helper_test.go
index c93d0fc6d2b..ff1572d569a 100644
--- a/internal/configs/version1/template_helper_test.go
+++ b/internal/configs/version1/template_helper_test.go
@@ -588,6 +588,12 @@ func TestGenerateProxySetHeadersForInvalidHeadersForErrorsInMaster(t *testing.T)
 				"nginx.org/proxy-set-headers": "X-Forwarded-ABC!,BVC§",
 			},
 		},
+		{
+			name: "Header Value With invalid Characters",
+			annotations: map[string]string{
+				"nginx.org/proxy-set-headers": "X-Forwarded ABC$",
+			},
+		},
 		{
 			name: "Headers with invalid Format",
 			annotations: map[string]string{
diff --git a/internal/k8s/validation.go b/internal/k8s/validation.go
index 99ca873ccbd..153677c983c 100644
--- a/internal/k8s/validation.go
+++ b/internal/k8s/validation.go
@@ -437,6 +437,10 @@ func validateProxySetHeaderAnnotation(context *annotationValidationContext) fiel
 
 		value := strings.TrimSpace(parts[1])
 
+		if strings.Contains(value, "$") {
+			allErrs = append(allErrs, field.Invalid(context.fieldPath, header, "invalid character in value: $"))
+		}
+
 		if name == "" {
 			allErrs = append(allErrs, field.Invalid(context.fieldPath, header, "empty header name: "+header))
 			continue