diff --git a/config/esp32/components/chip/Kconfig b/config/esp32/components/chip/Kconfig
index 86b7381f129720..bff112fd594046 100644
--- a/config/esp32/components/chip/Kconfig
+++ b/config/esp32/components/chip/Kconfig
@@ -104,7 +104,7 @@ menu "CHIP Core"
 
         config BUILD_CHIP_TESTS
             bool "Build CHIP tests"
-            default "y"
+            default n
             help
                 Build CHIP test binaries.
 
diff --git a/docs/guides/esp32/setup_idf_chip.md b/docs/guides/esp32/setup_idf_chip.md
index 2196109bea077e..7ee72089194645 100644
--- a/docs/guides/esp32/setup_idf_chip.md
+++ b/docs/guides/esp32/setup_idf_chip.md
@@ -69,6 +69,17 @@ source scripts/bootstrap.sh
 Whenever Matter environment is out of date, it can be updated by running above
 command.
 
+In IDF v4.4.x, `esptool` is part of the esp-idf repository, but in IDF v5.x, it
+is moved out as a Python package which can be installed using pip.
+
+If you are using IDF v5.x or later, please install `esptool` using the command
+below:
+
+```
+# Please make sure to run this command in the Matter Python environment
+python3 -m pip install esptool
+```
+
 For MacOS, `gdbgui` python package will not be installed using `bootstrap.sh`
 script as it is restricted only for x64 Linux platforms. It is restricted
 because, building wheels for `gevent` (dependency of `gdbgui`) fails on MacOS.
diff --git a/examples/all-clusters-app/esp32/sdkconfig_m5stack.defaults b/examples/all-clusters-app/esp32/sdkconfig_m5stack.defaults
index d8d54e5eea03a8..a7d058bc7fe30a 100644
--- a/examples/all-clusters-app/esp32/sdkconfig_m5stack.defaults
+++ b/examples/all-clusters-app/esp32/sdkconfig_m5stack.defaults
@@ -67,3 +67,6 @@ CONFIG_BTDM_CTRL_LPCLK_SEL_MAIN_XTAL=n
 
 # Enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y
diff --git a/examples/all-clusters-app/esp32/sdkconfig_m5stack_rpc.defaults b/examples/all-clusters-app/esp32/sdkconfig_m5stack_rpc.defaults
index 35fd87ed9f690c..e0cf1a0f22a874 100644
--- a/examples/all-clusters-app/esp32/sdkconfig_m5stack_rpc.defaults
+++ b/examples/all-clusters-app/esp32/sdkconfig_m5stack_rpc.defaults
@@ -71,3 +71,6 @@ CONFIG_BTDM_CTRL_LPCLK_SEL_MAIN_XTAL=n
 
 # Enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y
diff --git a/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack.defaults b/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack.defaults
index d8d54e5eea03a8..a7d058bc7fe30a 100644
--- a/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack.defaults
+++ b/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack.defaults
@@ -67,3 +67,6 @@ CONFIG_BTDM_CTRL_LPCLK_SEL_MAIN_XTAL=n
 
 # Enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y
diff --git a/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack_rpc.defaults b/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack_rpc.defaults
index 35fd87ed9f690c..e0cf1a0f22a874 100644
--- a/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack_rpc.defaults
+++ b/examples/all-clusters-minimal-app/esp32/sdkconfig_m5stack_rpc.defaults
@@ -71,3 +71,6 @@ CONFIG_BTDM_CTRL_LPCLK_SEL_MAIN_XTAL=n
 
 # Enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y
diff --git a/src/test_driver/esp32/sdkconfig.defaults b/src/test_driver/esp32/sdkconfig.defaults
index 77ae47ce60b141..2770877a587298 100644
--- a/src/test_driver/esp32/sdkconfig.defaults
+++ b/src/test_driver/esp32/sdkconfig.defaults
@@ -34,3 +34,6 @@ CONFIG_BT_ENABLED=y
 
 #enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y
diff --git a/src/test_driver/esp32/sdkconfig_qemu.defaults b/src/test_driver/esp32/sdkconfig_qemu.defaults
index 6278876c71d564..cf1e0a5d6a381a 100644
--- a/src/test_driver/esp32/sdkconfig_qemu.defaults
+++ b/src/test_driver/esp32/sdkconfig_qemu.defaults
@@ -52,3 +52,6 @@ CONFIG_ESP_TASK_WDT=n
 
 # Enable HKDF in mbedtls
 CONFIG_MBEDTLS_HKDF_C=y
+
+# Build chip tests
+CONFIG_BUILD_CHIP_TESTS=y