diff --git a/test/cpp/interop/xds_interop_server.cc b/test/cpp/interop/xds_interop_server.cc
index 15fe10d141dd0..49b4a82da6fb5 100644
--- a/test/cpp/interop/xds_interop_server.cc
+++ b/test/cpp/interop/xds_interop_server.cc
@@ -79,12 +79,14 @@ int main(int argc, char** argv) {
     return 1;
   }
   grpc::EnableDefaultHealthCheckService(false);
-  if (absl::GetFlag(FLAGS_enable_csm_observability)) {
+  bool enable_csm_observability = absl::GetFlag(FLAGS_enable_csm_observability);
+  if (enable_csm_observability) {
     EnableCsmObservability();
   }
-  grpc::testing::RunServer(
-      absl::GetFlag(FLAGS_secure_mode), port, maintenance_port, hostname,
-      absl::GetFlag(FLAGS_server_id), [](grpc::Server* /* unused */) {});
+  grpc::testing::RunServer(absl::GetFlag(FLAGS_secure_mode),
+                           enable_csm_observability, port, maintenance_port,
+                           hostname, absl::GetFlag(FLAGS_server_id),
+                           [](grpc::Server* /* unused */) {});
 
   return 0;
 }
diff --git a/test/cpp/interop/xds_interop_server_lib.cc b/test/cpp/interop/xds_interop_server_lib.cc
index f8f860efb5539..8508b749f7a9f 100644
--- a/test/cpp/interop/xds_interop_server_lib.cc
+++ b/test/cpp/interop/xds_interop_server_lib.cc
@@ -169,15 +169,11 @@ class MaintenanceServices {
         grpc::health::v1::HealthCheckResponse::SERVING);
   }
 
-  std::unique_ptr<ServerBuilder> InitializeServerBuilder(int port) {
-    auto builder = std::make_unique<ServerBuilder>();
+  void AddToServerBuilder(ServerBuilder* builder) {
     builder->RegisterService(&health_check_service_);
     builder->RegisterService(&update_health_service_);
     builder->RegisterService(&hook_service_);
-    grpc::AddAdminServices(builder.get());
-    builder->AddListeningPort(absl::StrCat("0.0.0.0:", port),
-                              grpc::InsecureServerCredentials());
-    return builder;
+    grpc::AddAdminServices(builder);
   }
 
  private:
@@ -227,8 +223,9 @@ absl::optional<grpc::Status> GetStatusForRpcBehaviorMetadata(
   return absl::nullopt;
 }
 
-void RunServer(bool secure_mode, const int port, const int maintenance_port,
-               absl::string_view hostname, absl::string_view server_id,
+void RunServer(bool secure_mode, bool enable_csm_observability, int port,
+               const int maintenance_port, absl::string_view hostname,
+               absl::string_view server_id,
                const std::function<void(Server*)>& server_callback) {
   std::unique_ptr<Server> xds_enabled_server;
   std::unique_ptr<Server> server;
@@ -236,7 +233,6 @@ void RunServer(bool secure_mode, const int port, const int maintenance_port,
 
   grpc::reflection::InitProtoReflectionServerBuilderPlugin();
   MaintenanceServices maintenance_services;
-  ServerBuilder builder;
   if (secure_mode) {
     XdsServerBuilder xds_builder;
     xds_builder.RegisterService(&service);
@@ -245,13 +241,25 @@ void RunServer(bool secure_mode, const int port, const int maintenance_port,
         grpc::XdsServerCredentials(grpc::InsecureServerCredentials()));
     xds_enabled_server = xds_builder.BuildAndStart();
     gpr_log(GPR_INFO, "Server starting on 0.0.0.0:%d", port);
-    server = maintenance_services.InitializeServerBuilder(maintenance_port)
-                 ->BuildAndStart();
+    ServerBuilder builder;
+    maintenance_services.AddToServerBuilder(&builder);
+    server = builder
+                 .AddListeningPort(absl::StrCat("0.0.0.0:", maintenance_port),
+                                   grpc::InsecureServerCredentials())
+                 .BuildAndStart();
     gpr_log(GPR_INFO, "Maintenance server listening on 0.0.0.0:%d",
             maintenance_port);
   } else {
-    auto builder = maintenance_services.InitializeServerBuilder(port);
-    server = builder->RegisterService(&service).BuildAndStart();
+    // CSM Observability requires an xDS enabled server.
+    auto builder = enable_csm_observability
+                       ? std::make_unique<XdsServerBuilder>()
+                       : std::make_unique<ServerBuilder>();
+    maintenance_services.AddToServerBuilder(builder.get());
+    server = builder
+                 ->AddListeningPort(absl::StrCat("0.0.0.0:", port),
+                                    grpc::InsecureServerCredentials())
+                 .RegisterService(&service)
+                 .BuildAndStart();
     gpr_log(GPR_INFO, "Server listening on 0.0.0.0:%d", port);
   }
   server_callback(server.get());
diff --git a/test/cpp/interop/xds_interop_server_lib.h b/test/cpp/interop/xds_interop_server_lib.h
index 486822f2b1744..4b196d02fa985 100644
--- a/test/cpp/interop/xds_interop_server_lib.h
+++ b/test/cpp/interop/xds_interop_server_lib.h
@@ -30,8 +30,9 @@ namespace testing {
 absl::optional<grpc::Status> GetStatusForRpcBehaviorMetadata(
     absl::string_view header_value, absl::string_view hostname);
 
-void RunServer(bool secure_mode, const int port, const int maintenance_port,
-               absl::string_view hostname, absl::string_view server_id,
+void RunServer(bool secure_mode, bool enable_csm_observability, int port,
+               const int maintenance_port, absl::string_view hostname,
+               absl::string_view server_id,
                const std::function<void(Server*)>& server_callback);
 
 }  // namespace testing
diff --git a/test/cpp/interop/xds_interop_server_test.cc b/test/cpp/interop/xds_interop_server_test.cc
index 27b5e39fa86ec..b6b2c3ab538b4 100644
--- a/test/cpp/interop/xds_interop_server_test.cc
+++ b/test/cpp/interop/xds_interop_server_test.cc
@@ -37,8 +37,9 @@ namespace {
 
 void ServerLoop(int port, grpc_core::Mutex* mutex,
                 grpc_core::CondVar* condition, Server** server) {
-  RunServer(false, port, /* should not be used */ -1, "127.0.0.1",
-            "test_server", [&](Server* s) {
+  RunServer(false, /*enable_csm_observability=*/false, port,
+            /* should not be used */ -1, "127.0.0.1", "test_server",
+            [&](Server* s) {
               grpc_core::MutexLock lock(mutex);
               *server = s;
               condition->Signal();