diff --git a/src/lightning_app/CHANGELOG.md b/src/lightning_app/CHANGELOG.md
index e92e80c71deb0..093f6a778e84d 100644
--- a/src/lightning_app/CHANGELOG.md
+++ b/src/lightning_app/CHANGELOG.md
@@ -62,6 +62,8 @@ The format is based on [Keep a Changelog](http://keepachangelog.com/en/1.0.0/).
 
 - Fixed a bug where `AutoScaler` would fail with min_replica=0 ([#16092](https://github.com/Lightning-AI/lightning/pull/16092)
 
+- Fixed auto-batching to enable batching for requests coming even after batch interval but is in the queue ([#16110](https://github.com/Lightning-AI/lightning/pull/16110))
+
 
 - Fixed a non-thread safe deepcopy in the scheduler ([#16114](https://github.com/Lightning-AI/lightning/pull/16114))
 
diff --git a/src/lightning_app/components/serve/auto_scaler.py b/src/lightning_app/components/serve/auto_scaler.py
index 035b38f1bd5d8..f1ab081e12d8b 100644
--- a/src/lightning_app/components/serve/auto_scaler.py
+++ b/src/lightning_app/components/serve/auto_scaler.py
@@ -194,13 +194,13 @@ def __init__(
         self._batch = []
         self._responses = {}  # {request_id: response}
         self._last_batch_sent = 0
+        self._server_status = {}
         self._api_name = api_name
 
         if not endpoint.startswith("/"):
             endpoint = "/" + endpoint
 
         self.endpoint = endpoint
-
         self._fastapi_app = None
 
         self._cold_start_proxy = None
@@ -212,23 +212,29 @@ def __init__(
             else:
                 raise ValueError("cold_start_proxy must be of type ColdStartProxy or str")
 
-    async def send_batch(self, batch: List[Tuple[str, _BatchRequestModel]]):
-        server = next(self._iter)  # round-robin
+    async def send_batch(self, batch: List[Tuple[str, _BatchRequestModel]], server_url: str):
         request_data: List[_LoadBalancer._input_type] = [b[1] for b in batch]
         batch_request_data = _BatchRequestModel(inputs=request_data)
 
         try:
+            self._server_status[server_url] = False
             async with aiohttp.ClientSession() as session:
                 headers = {
                     "accept": "application/json",
                     "Content-Type": "application/json",
                 }
                 async with session.post(
-                    f"{server}{self.endpoint}",
+                    f"{server_url}{self.endpoint}",
                     json=batch_request_data.dict(),
                     timeout=self._timeout_inference_request,
                     headers=headers,
                 ) as response:
+                    # resetting the server status so other requests can be
+                    # scheduled on this node
+                    if server_url in self._server_status:
+                        # TODO - if the server returns an error, track that so
+                        #  we don't send more requests to it
+                        self._server_status[server_url] = True
                     if response.status == 408:
                         raise HTTPException(408, "Request timed out")
                     response.raise_for_status()
@@ -241,19 +247,39 @@ async def send_batch(self, batch: List[Tuple[str, _BatchRequestModel]]):
         except Exception as ex:
             result = {request[0]: ex for request in batch}
             self._responses.update(result)
+        finally:
+            self._server_status[server_url] = True
+
+    def _find_free_server(self) -> Optional[str]:
+        existing = set(self._server_status.keys())
+        for server in existing:
+            status = self._server_status.get(server, None)
+            if status is None:
+                logger.error("Server is not found in the status list. This should not happen.")
+            if status:
+                return server
 
     async def consumer(self):
+        self._last_batch_sent = time.time()
         while True:
             await asyncio.sleep(0.05)
-
             batch = self._batch[: self.max_batch_size]
-            while batch and (
-                (len(batch) == self.max_batch_size) or ((time.time() - self._last_batch_sent) > self.timeout_batching)
-            ):
-                asyncio.create_task(self.send_batch(batch))
-
-                self._batch = self._batch[self.max_batch_size :]
-                batch = self._batch[: self.max_batch_size]
+            is_batch_ready = len(batch) == self.max_batch_size
+            is_batch_timeout = time.time() - self._last_batch_sent > self.timeout_batching
+            server_url = self._find_free_server()
+            # setting the server status to be busy! This will be reset by
+            # the send_batch function after the server responds
+            if server_url is None:
+                # TODO - a timeout until we try looking for servers
+                logger.error("No servers available")
+                continue
+            if batch and (is_batch_ready or is_batch_timeout):
+                # find server with capacity
+                # TODO multiple instances of consumer should not be running
+                #  without locking the server array
+                asyncio.create_task(self.send_batch(batch, server_url))
+                # resetting the batch array, TODO - not locking the array
+                self._batch = self._batch[len(batch) :]
                 self._last_batch_sent = time.time()
 
     async def process_request(self, data: BaseModel, request_id=uuid.uuid4().hex):
@@ -359,6 +385,18 @@ async def update_servers(servers: List[str], authenticated: bool = Depends(authe
             async with lock:
                 self._servers = servers
             self._iter = cycle(self._servers)
+            updated_servers = set()
+            # do not try to loop over the dict keys as the dict might change from other places
+            existing_servers = list(self._server_status.keys())
+            for server in servers:
+                updated_servers.add(server)
+                if server not in existing_servers:
+                    self._server_status[server] = True
+                    logger.info(f"Registering server {server}", self._server_status)
+            for existing in existing_servers:
+                if existing not in updated_servers:
+                    logger.info(f"De-Registering server {existing}", self._server_status)
+                    del self._server_status[existing]
 
         @fastapi_app.post(self.endpoint, response_model=self._output_type)
         async def balance_api(inputs: input_type):