diff --git a/.changeset/busy-mirrors-try.md b/.changeset/busy-mirrors-try.md
new file mode 100644
index 000000000..7e5d3b632
--- /dev/null
+++ b/.changeset/busy-mirrors-try.md
@@ -0,0 +1,5 @@
+---
+'mermaid': patch
+---
+
+fix: Resolved parsing error where direction TD was not recognized within subgraphs
diff --git a/cypress/integration/rendering/flowchart.spec.js b/cypress/integration/rendering/flowchart.spec.js
index 40713ac4e..6e19da973 100644
--- a/cypress/integration/rendering/flowchart.spec.js
+++ b/cypress/integration/rendering/flowchart.spec.js
@@ -973,4 +973,19 @@ graph TD
       }
     );
   });
+
+  it('70: should render a subgraph with direction TD', () => {
+    imgSnapshotTest(
+      `
+      flowchart LR
+        subgraph A
+          direction TD
+          a --> b
+        end
+      `,
+      {
+        fontFamily: 'courier',
+      }
+    );
+  });
 });
diff --git a/packages/mermaid/src/diagrams/flowchart/parser/flow.jison b/packages/mermaid/src/diagrams/flowchart/parser/flow.jison
index 7b2f4386a..7340cf8d3 100644
--- a/packages/mermaid/src/diagrams/flowchart/parser/flow.jison
+++ b/packages/mermaid/src/diagrams/flowchart/parser/flow.jison
@@ -140,6 +140,7 @@ that id.
 .*direction\s+BT[^\n]*       return 'direction_bt';
 .*direction\s+RL[^\n]*       return 'direction_rl';
 .*direction\s+LR[^\n]*       return 'direction_lr';
+.*direction\s+TD[^\n]*       return 'direction_td';
 
 [^\s\"]+\@(?=[^\{\"])               { return 'LINK_ID'; }
 [0-9]+                       return 'NUM';
@@ -626,6 +627,8 @@ direction
     { $$={stmt:'dir', value:'RL'};}
     | direction_lr
     { $$={stmt:'dir', value:'LR'};}
+    | direction_td
+    { $$={stmt:'dir', value:'TD'};}
     ;
 
 %%
diff --git a/packages/mermaid/src/diagrams/flowchart/parser/subgraph.spec.js b/packages/mermaid/src/diagrams/flowchart/parser/subgraph.spec.js
index 9339a6e2c..1273c4d7f 100644
--- a/packages/mermaid/src/diagrams/flowchart/parser/subgraph.spec.js
+++ b/packages/mermaid/src/diagrams/flowchart/parser/subgraph.spec.js
@@ -309,4 +309,21 @@ describe('when parsing subgraphs', function () {
     expect(subgraphA.nodes).toContain('a');
     expect(subgraphA.nodes).not.toContain('c');
   });
+  it('should correctly parse direction TD inside a subgraph', function () {
+    const res = flow.parser.parse(`
+      graph LR
+        subgraph WithTD
+          direction TD
+          A1 --> A2
+        end
+    `);
+
+    const subgraphs = flow.parser.yy.getSubGraphs();
+    expect(subgraphs.length).toBe(1);
+    const subgraph = subgraphs[0];
+
+    expect(subgraph.dir).toBe('TD');
+    expect(subgraph.nodes).toContain('A1');
+    expect(subgraph.nodes).toContain('A2');
+  });
 });