diff --git a/aea/configurations/base.py b/aea/configurations/base.py
index 080ba7bcbc..50dd99fed8 100644
--- a/aea/configurations/base.py
+++ b/aea/configurations/base.py
@@ -81,6 +81,7 @@
     SimpleId,
     SimpleIdOrStr,
     load_module,
+    perform_dict_override,
     recursive_update,
 )
 from aea.helpers.ipfs.base import IPFSHashOnly
@@ -1580,7 +1581,12 @@ def all_components_id(self) -> List[ComponentId]:
 
         return result
 
-    def update(self, data: Dict, env_vars_friendly: bool = False) -> None:
+    def update(  # pylint: disable=arguments-differ
+        self,
+        data: Dict,
+        env_vars_friendly: bool = False,
+        dict_overrides: Optional[Dict] = None,
+    ) -> None:
         """
         Update configuration with other data.
 
@@ -1589,6 +1595,7 @@ def update(self, data: Dict, env_vars_friendly: bool = False) -> None:
 
         :param data: the data to replace.
         :param env_vars_friendly: whether or not it is env vars friendly.
+        :param dict_overrides: A dictionary containing mapping for Component ID -> List of paths
         """
         data = copy(data)
         # update component parts
@@ -1599,6 +1606,7 @@ def update(self, data: Dict, env_vars_friendly: bool = False) -> None:
         for component_id, obj in new_component_configurations.items():
             if component_id not in updated_component_configurations:
                 updated_component_configurations[component_id] = obj
+
             else:
                 recursive_update(
                     updated_component_configurations[component_id],
@@ -1606,6 +1614,14 @@ def update(self, data: Dict, env_vars_friendly: bool = False) -> None:
                     allow_new_values=True,
                 )
 
+            if dict_overrides is not None and component_id in dict_overrides:
+                perform_dict_override(
+                    component_id,
+                    dict_overrides,
+                    updated_component_configurations,
+                    new_component_configurations,
+                )
+
         self.check_overrides_valid(data, env_vars_friendly=env_vars_friendly)
         super().update(data, env_vars_friendly=env_vars_friendly)
         self.validate_config_data(self.json, env_vars_friendly=env_vars_friendly)
diff --git a/aea/configurations/manager.py b/aea/configurations/manager.py
index 349ad2a5e1..9e617e3bfc 100644
--- a/aea/configurations/manager.py
+++ b/aea/configurations/manager.py
@@ -20,6 +20,7 @@
 """Implementation of the AgentConfigManager."""
 import json
 import os
+from collections import OrderedDict
 from copy import deepcopy
 from pathlib import Path
 from typing import Callable, Dict, List, NewType, Optional, Set, Tuple, Union, cast
@@ -244,7 +245,9 @@ def handle_dotted_path(
         )
 
         # find path to the resource directory
-        path_to_resource_directory = Path(".") / resource_type_plural / resource_name
+        path_to_resource_directory = (
+            aea_project_path / resource_type_plural / resource_name
+        )
         path_to_resource_configuration = (
             path_to_resource_directory
             / RESOURCE_TYPE_TO_CONFIG_FILE[resource_type_plural]
@@ -381,7 +384,15 @@ def set_variable(self, path: VariablePath, value: JSON_TYPES) -> None:
             # agent
             overrides.update(data)
 
-        self.update_config(overrides)
+        dict_overrides: Optional[Dict] = None
+        if isinstance(value, (dict, OrderedDict)):
+            dict_overrides = {
+                component_id: [
+                    json_path,
+                ]
+            }
+
+        self.update_config(overrides, dict_overrides=dict_overrides)
 
     @staticmethod
     def _make_dict_for_path_and_value(json_path: JsonPath, value: JSON_TYPES) -> Dict:
@@ -484,7 +495,11 @@ def _parse_path(self, path: VariablePath) -> Tuple[Optional[ComponentId], JsonPa
             )
         return component_id, json_path
 
-    def update_config(self, overrides: Dict) -> None:
+    def update_config(
+        self,
+        overrides: Dict,
+        dict_overrides: Optional[Dict] = None,
+    ) -> None:
         """
         Apply overrides for agent config.
 
@@ -492,6 +507,7 @@ def update_config(self, overrides: Dict) -> None:
         Does not save it on the disc!
 
         :param overrides: overridden values dictionary
+        :param dict_overrides: A dictionary containing mapping for Component ID -> List of paths
 
         :return: None
         """
@@ -510,7 +526,11 @@ def update_config(self, overrides: Dict) -> None:
                 obj, env_vars_friendly=self.env_vars_friendly
             )
 
-        self.agent_config.update(overrides, env_vars_friendly=self.env_vars_friendly)
+        self.agent_config.update(
+            overrides,
+            env_vars_friendly=self.env_vars_friendly,
+            dict_overrides=dict_overrides,
+        )
 
     def _filter_overrides(self, overrides: Dict) -> Dict:
         """Stay only updated values for agent config."""
diff --git a/aea/configurations/validation.py b/aea/configurations/validation.py
index eae294d06a..1c77034aaf 100644
--- a/aea/configurations/validation.py
+++ b/aea/configurations/validation.py
@@ -21,6 +21,7 @@
 import inspect
 import json
 import os
+from collections import OrderedDict
 from copy import deepcopy
 from pathlib import Path
 from typing import Any, Dict, Iterator, List, Optional, Tuple
@@ -309,12 +310,27 @@ def check_excludes(path: Tuple[str, ...]) -> bool:
                 return True
         return False
 
+    def is_a_dict_override(path: Tuple[str, ...]) -> bool:
+        """Check if an override is a dict override."""
+        flag = False
+        while len(path) > 0:
+            path = path[:-1]
+            if path in pattern_path_value:
+                pattern_value = pattern_path_value[path]
+                flag = isinstance(pattern_value, OrderedDict)
+                break
+        return flag
+
     for path, new_value in data_path_value.items():
         if check_excludes(path):
             continue
 
         if path not in pattern_path_value:
-            errors.append(f"Attribute `{'.'.join(path)}` is not allowed to be updated!")
+            if not is_a_dict_override(path=(*path,)):
+                errors.append(
+                    f"Attribute `{'.'.join(path)}` is not allowed to be updated!"
+                )
+
             continue
 
         pattern_value = pattern_path_value[path]
@@ -330,6 +346,9 @@ def check_excludes(path: Tuple[str, ...]) -> bool:
             # one of the values is env variable: skip data type check
             continue
 
+        if isinstance(pattern_value, OrderedDict) and isinstance(new_value, dict):
+            continue
+
         if (
             not issubclass(type(new_value), type(pattern_value))
             and new_value is not None
diff --git a/aea/helpers/base.py b/aea/helpers/base.py
index 4e90630d7a..27823bc5f4 100644
--- a/aea/helpers/base.py
+++ b/aea/helpers/base.py
@@ -485,6 +485,33 @@ def recursive_update(
             to_update[key] = value
 
 
+def perform_dict_override(
+    component_id: Any,
+    overrides: Dict,
+    updated_configuration: Dict,
+    new_configuration: Dict,
+) -> None:
+    """
+    Perform recursive dict override.
+
+    :param component_id: Component ID for which the updated will be performed
+    :param overrides: A dictionary containing mapping for Component ID -> List of paths
+    :param updated_configuration: Configuration which needs to be updated
+    :param new_configuration: Configuration from which the method will perform the update
+    """
+    for path in overrides[component_id]:
+
+        will_be_updated = updated_configuration[component_id]
+        update = new_configuration[component_id]
+
+        *params, update_param = path
+        for param in params:
+            will_be_updated = will_be_updated[param]
+            update = update[param]
+
+        will_be_updated[update_param] = update[update_param]
+
+
 def _get_aea_logger_name_prefix(module_name: str, agent_name: str) -> str:
     """
     Get the logger name prefix.
diff --git a/docs/api/configurations/manager.md b/docs/api/configurations/manager.md
index 08f20e2f07..5572dfa4e0 100644
--- a/docs/api/configurations/manager.md
+++ b/docs/api/configurations/manager.md
@@ -173,7 +173,8 @@ json friendly value.
 #### update`_`config
 
 ```python
-def update_config(overrides: Dict) -> None
+def update_config(overrides: Dict,
+                  dict_overrides: Optional[Dict] = None) -> None
 ```
 
 Apply overrides for agent config.
@@ -184,6 +185,7 @@ Does not save it on the disc!
 **Arguments**:
 
 - `overrides`: overridden values dictionary
+- `dict_overrides`: A dictionary containing mapping for Component ID -> List of paths
 
 **Returns**:
 
diff --git a/docs/api/helpers/base.md b/docs/api/helpers/base.md
index 578de3ad9c..cd9c766cd9 100644
--- a/docs/api/helpers/base.md
+++ b/docs/api/helpers/base.md
@@ -342,6 +342,25 @@ It does side-effects to the first dictionary.
 - `new_values`: the dictionary of new values to replace.
 - `allow_new_values`: whether or not to allow new values.
 
+<a id="aea.helpers.base.perform_dict_override"></a>
+
+#### perform`_`dict`_`override
+
+```python
+def perform_dict_override(component_id: Any, overrides: Dict,
+                          updated_configuration: Dict,
+                          new_configuration: Dict) -> None
+```
+
+Perform recursive dict override.
+
+**Arguments**:
+
+- `component_id`: Component ID for which the updated will be performed
+- `overrides`: A dictionary containing mapping for Component ID -> List of paths
+- `updated_configuration`: Configuration which needs to be updated
+- `new_configuration`: Configuration from which the method will perform the update
+
 <a id="aea.helpers.base.find_topological_order"></a>
 
 #### find`_`topological`_`order
diff --git a/tests/data/dummy_aea/aea-config.yaml b/tests/data/dummy_aea/aea-config.yaml
index 6270178fdc..560840d36d 100644
--- a/tests/data/dummy_aea/aea-config.yaml
+++ b/tests/data/dummy_aea/aea-config.yaml
@@ -37,3 +37,10 @@ connection_private_key_paths:
   fetchai: fetchai_private_key.txt
 default_routing: {}
 dependencies: {}
+---
+public_id: dummy_author/test_skill:0.1.0
+type: skill
+models:
+  scaffold:
+    args:
+      recursive: {}
\ No newline at end of file
diff --git a/tests/data/dummy_aea/skills/test_skill/skill.yaml b/tests/data/dummy_aea/skills/test_skill/skill.yaml
index c34fe31d5f..c7a83b340c 100644
--- a/tests/data/dummy_aea/skills/test_skill/skill.yaml
+++ b/tests/data/dummy_aea/skills/test_skill/skill.yaml
@@ -30,6 +30,7 @@ models:
   scaffold:
     args:
       foo: bar
+      recursive: {}
     class_name: MyModel
 dependencies: {}
 is_abstract: false
diff --git a/tests/test_aea_builder.py b/tests/test_aea_builder.py
index 1f0a086284..87838ba766 100644
--- a/tests/test_aea_builder.py
+++ b/tests/test_aea_builder.py
@@ -1052,16 +1052,14 @@ def test_dependency_tree_check():
     dummy_aea_path = Path(CUR_PATH, "data", "dummy_aea")
     aea_config_file = dummy_aea_path / DEFAULT_AEA_CONFIG_FILE
     original_content = aea_config_file.read_text()
-    missing_dependencies = original_content.replace(
-        "- dummy_author/test_skill:0.1.0\n", ""
-    )
+    missing_dependencies = original_content.replace("- dummy_author/dummy:0.1.0\n", "")
     aea_config_file.write_text(missing_dependencies)
 
     try:
         with pytest.raises(
             AEAEnforceError,
             match=re.escape(
-                "Following dependencies are present in the project but missing from the aea-config.yaml; {PackageId(skill, dummy_author/test_skill:0.1.0)}"
+                "Following dependencies are present in the project but missing from the aea-config.yaml; {PackageId(skill, dummy_author/dummy:0.1.0)}"
             ),
         ):
             AEABuilder.from_aea_project(dummy_aea_path)
diff --git a/tests/test_cli/test_config.py b/tests/test_cli/test_config.py
index d66c080afd..5e03126180 100644
--- a/tests/test_cli/test_config.py
+++ b/tests/test_cli/test_config.py
@@ -1,7 +1,7 @@
 # -*- coding: utf-8 -*-
 # ------------------------------------------------------------------------------
 #
-#   Copyright 2021 Valory AG
+#   Copyright 2021-2022 Valory AG
 #   Copyright 2018-2019 Fetch.AI Limited
 #
 #   Licensed under the Apache License, Version 2.0 (the "License");
@@ -676,8 +676,6 @@ def get_component_config_value(self) -> dict:
     def test_set_get_correct_path(self):
         """Test component value updated in agent config not in component config."""
         agent_config = self.load_agent_config()
-        assert not agent_config.component_configurations
-
         config_value = self.get_component_config_value()
         assert config_value == self.INITIAL_VALUE
 
diff --git a/tests/test_configurations/test_base.py b/tests/test_configurations/test_base.py
index 1a1ded4818..1374fc14cc 100644
--- a/tests/test_configurations/test_base.py
+++ b/tests/test_configurations/test_base.py
@@ -366,7 +366,7 @@ def test_all_components_id(self):
 
     def test_component_configurations_setter(self):
         """Test component configuration setter."""
-        assert self.aea_config.component_configurations == {}
+        assert len(self.aea_config.component_configurations) == 1
         new_component_configurations = {
             self.dummy_skill_component_id: self.new_dummy_skill_config
         }
@@ -374,7 +374,7 @@ def test_component_configurations_setter(self):
 
     def test_component_configurations_setter_negative(self):
         """Test component configuration setter with wrong configurations."""
-        assert self.aea_config.component_configurations == {}
+        assert len(self.aea_config.component_configurations) == 1
         new_component_configurations = {
             self.dummy_skill_component_id: {
                 "handlers": {"dummy": {"class_name": "SomeClass"}}
diff --git a/tests/test_configurations/test_manager.py b/tests/test_configurations/test_manager.py
index cbc2240d28..7fdfcf9d24 100644
--- a/tests/test_configurations/test_manager.py
+++ b/tests/test_configurations/test_manager.py
@@ -1,7 +1,7 @@
 # -*- coding: utf-8 -*-
 # ------------------------------------------------------------------------------
 #
-#   Copyright 2021 Valory AG
+#   Copyright 2021-2022 Valory AG
 #   Copyright 2018-2019 Fetch.AI Limited
 #
 #   Licensed under the Apache License, Version 2.0 (the "License");
@@ -21,6 +21,7 @@
 import os
 from copy import deepcopy
 from pathlib import Path
+from typing import Dict, cast
 from unittest.mock import mock_open, patch
 
 import pytest
@@ -40,9 +41,7 @@
 
 
 DUMMY_AEA = Path(ROOT_DIR) / "tests" / "data" / "dummy_aea"
-
-agent_config_data = yaml.safe_load(
-    """
+DUMMY_AEA_CONFIG = """
 agent_name: Agent0
 author: dummy_author
 version: 1.0.0
@@ -72,12 +71,23 @@
   ethereum: ethereum_private_key.txt
 default_routing: {}
 """
-)
+
+DUMMY_SKILL_OVERRIDE = """
+public_id: dummy_author/test_skill:0.1.0
+type: skill
+models:
+  scaffold:
+    args:
+      recursive:
+        hello: world
+"""
+
+AGENT_CONFIG_DATA = yaml.safe_load(DUMMY_AEA_CONFIG)
 
 
 def test_envvars_applied():
     """Test env vars replaced with values."""
-    dct = deepcopy(agent_config_data)
+    dct = deepcopy(AGENT_CONFIG_DATA)
     with patch.object(AgentConfigManager, "_load_config_data", return_value=[dct]):
         os.environ["DISABLE_LOGS"] = "true"
         agent_config_manager = AgentConfigManager.load(".", substitude_env_vars=True)
@@ -129,7 +139,7 @@ def test_envvars_applied():
             )
 
     # not applied
-    dct = deepcopy(agent_config_data)
+    dct = deepcopy(AGENT_CONFIG_DATA)
     with patch.object(AgentConfigManager, "_load_config_data", return_value=[dct]):
         os.environ["DISABLE_LOGS"] = "true"
         agent_config_manager = AgentConfigManager.load(".", substitude_env_vars=False)
@@ -142,7 +152,7 @@ def test_envvars_applied():
 @patch.object(AgentConfigManager, "get_overridables", return_value=[{}, {}])
 def test_envvars_preserved(*mocks):
     """Test env vars not modified on config update."""
-    dct = deepcopy(agent_config_data)
+    dct = deepcopy(AGENT_CONFIG_DATA)
     new_cosmos_key_value = "cosmons_key_updated"
 
     with patch.object(AgentConfigManager, "_load_config_data", return_value=[dct]):
@@ -176,7 +186,7 @@ def test_envvars_preserved(*mocks):
 
 def test_agent_attribute_get_set():
     """Test agent config manager  get set variables."""
-    dct = deepcopy(agent_config_data)
+    dct = deepcopy(AGENT_CONFIG_DATA)
     with patch.object(AgentConfigManager, "_load_config_data", return_value=[dct]):
         os.environ["DISABLE_LOGS"] = "true"
         agent_config_manager = AgentConfigManager.load(
@@ -235,6 +245,48 @@ def test_agent_attribute_get_set():
     agent_config_manager.verify_private_keys(DUMMY_AEA, lambda x, y, z: None)
 
 
+def test_recursive_updates() -> None:
+    """Test recursive updates."""
+    agent_config_manager = AgentConfigManager.load(DUMMY_AEA, substitude_env_vars=True)
+    agent_config_manager.set_variable(
+        "skills.test_skill.models.scaffold.args.recursive", {"foo": "bar"}
+    )
+    value = cast(
+        Dict,
+        agent_config_manager.get_variable(
+            "skills.test_skill.models.scaffold.args.recursive"
+        ),
+    )
+
+    assert value == {"foo": "bar"}
+
+    agent_config_manager.set_variable(
+        "skills.test_skill.models.scaffold.args.recursive",
+        {"hello": "world"},
+    )
+    value = cast(
+        Dict,
+        agent_config_manager.get_variable(
+            "skills.test_skill.models.scaffold.args.recursive"
+        ),
+    )
+
+    assert value == {"hello": "world"}
+
+    agent_config_manager.set_variable(
+        "skills.test_skill.models.scaffold.args.recursive.hello",
+        "world_0",
+    )
+    value = cast(
+        Dict,
+        agent_config_manager.get_variable(
+            "skills.test_skill.models.scaffold.args.recursive"
+        ),
+    )
+
+    assert value == {"hello": "world_0"}
+
+
 def test_agent_attribute_get_overridables():
     """Test AgentConfigManager.get_overridables."""
     agent_config_manager = AgentConfigManager.load(DUMMY_AEA, substitude_env_vars=False)