diff --git a/demos/common/export_models/export_model.py b/demos/common/export_models/export_model.py
index 341a770c77..af5f1869aa 100644
--- a/demos/common/export_models/export_model.py
+++ b/demos/common/export_models/export_model.py
@@ -448,7 +448,6 @@ def export_text_generation_model(model_repository_path, source_model, model_name
             raise ValueError("max_prompt_len is only supported for NPU target device")
         if task_parameters['max_prompt_len'] <= 0:
             raise ValueError("max_prompt_len should be a positive integer")
-        plugin_config['MAX_PROMPT_LEN'] = task_parameters['max_prompt_len']
     if task_parameters['ov_cache_dir'] is not None:
         plugin_config['CACHE_DIR'] = task_parameters['ov_cache_dir']
 
@@ -459,6 +458,16 @@ def export_text_generation_model(model_repository_path, source_model, model_name
     if "HETERO" in task_parameters['target_device']:
         plugin_config['MODEL_DISTRIBUTION_POLICY'] = 'PIPELINE_PARALLEL'
 
+    if task_parameters['target_device'] == 'NPU':
+        max_prompt_len = task_parameters['max_prompt_len']
+        npu_properties = {}
+        if max_prompt_len is not None:
+            npu_properties['MAX_PROMPT_LEN'] = max_prompt_len
+        if task_parameters['enable_prefix_caching']:
+            npu_properties['NPUW_LLM_ENABLE_PREFIX_CACHING'] = True
+        device_properties = { "NPU": npu_properties }
+        plugin_config['DEVICE_PROPERTIES'] = device_properties
+
     plugin_config_str = json.dumps(plugin_config)
     task_parameters['plugin_config'] = plugin_config_str
     
diff --git a/src/graph_export/graph_export.cpp b/src/graph_export/graph_export.cpp
index 41d7f9fabb..dadbd57777 100644
--- a/src/graph_export/graph_export.cpp
+++ b/src/graph_export/graph_export.cpp
@@ -597,12 +597,43 @@ std::variant<std::optional<std::string>, Status> GraphExport::createPluginString
         rapidjson::Value value;
         value.SetBool(pluginConfig.useNpuPrefixCaching.value());
         auto itr = d.FindMember("NPUW_LLM_ENABLE_PREFIX_CACHING");
-        if (itr != d.MemberEnd()) {
+        bool foundInTopLevel = (itr != d.MemberEnd());
+
+        bool foundInDeviceProperties = false;
+        if (!foundInTopLevel) {
+            auto devicePropsItr = d.FindMember("DEVICE_PROPERTIES");
+            if (devicePropsItr != d.MemberEnd() && devicePropsItr->value.IsObject()) {
+                auto npuItr = devicePropsItr->value.FindMember("NPU");
+                if (npuItr != devicePropsItr->value.MemberEnd() && npuItr->value.IsObject()) {
+                    auto npuPrefixCachingItr = npuItr->value.FindMember("NPUW_LLM_ENABLE_PREFIX_CACHING");
+                    foundInDeviceProperties = (npuPrefixCachingItr != npuItr->value.MemberEnd());
+                }
+            }
+        }
+
+        if (foundInTopLevel || foundInDeviceProperties) {
             return Status(StatusCode::PLUGIN_CONFIG_CONFLICTING_PARAMETERS, "Doubled NPUW_LLM_ENABLE_PREFIX_CACHING parameter in plugin config.");
         }
-        d.AddMember("NPUW_LLM_ENABLE_PREFIX_CACHING", value, d.GetAllocator());
+
+        // Add to nested structure DEVICE_PROPERTIES.NPU
+        auto devicePropsItr = d.FindMember("DEVICE_PROPERTIES");
+        if (devicePropsItr == d.MemberEnd()) {
+            rapidjson::Value deviceProps(rapidjson::kObjectType);
+            d.AddMember("DEVICE_PROPERTIES", deviceProps, d.GetAllocator());
+            devicePropsItr = d.FindMember("DEVICE_PROPERTIES");
+        }
+
+        auto npuItr = devicePropsItr->value.FindMember("NPU");
+        if (npuItr == devicePropsItr->value.MemberEnd()) {
+            rapidjson::Value npuObj(rapidjson::kObjectType);
+            devicePropsItr->value.AddMember("NPU", npuObj, d.GetAllocator());
+            npuItr = devicePropsItr->value.FindMember("NPU");
+        }
+
+        npuItr->value.AddMember("NPUW_LLM_ENABLE_PREFIX_CACHING", value, d.GetAllocator());
         configNotEmpty = true;
     }
+
     if (configNotEmpty) {
         // Serialize the document to a JSON string
         rapidjson::StringBuffer buffer;