diff --git a/.azure/hpu-tests.yml b/.azure/hpu-tests.yml
index 8281f9e5c5..e080a222de 100644
--- a/.azure/hpu-tests.yml
+++ b/.azure/hpu-tests.yml
@@ -35,7 +35,7 @@ jobs:
     cancelTimeoutInMinutes: "2"
     pool: intel-hpus
     container:
-      image: "vault.habana.ai/gaudi-docker/1.6.1/ubuntu20.04/habanalabs/pytorch-installer-1.12.0:latest"
+      image: "vault.habana.ai/gaudi-docker/1.7.0/ubuntu20.04/habanalabs/pytorch-installer-1.12.0:latest"
       options: "--runtime=habana -e HABANA_VISIBLE_DEVICES=all -e OMPI_MCA_btl_vader_single_copy_mechanism=none --cap-add=sys_nice --ipc=host --shm-size=4g -v /usr/bin/docker:/tmp/docker:ro"
     workspace:
       clean: all
diff --git a/dockers/ci-runner-hpu/Dockerfile b/dockers/ci-runner-hpu/Dockerfile
index 548e6de30f..db9f911312 100644
--- a/dockers/ci-runner-hpu/Dockerfile
+++ b/dockers/ci-runner-hpu/Dockerfile
@@ -16,7 +16,7 @@
 #        gaudi-docker-agent:latest
 
 ARG DIST="latest"
-ARG GAUDI_VERSION="1.6.1"
+ARG GAUDI_VERSION="1.7.0"
 ARG PYTORCH_INSTALLER_VERSION="1.12.0"
 FROM vault.habana.ai/gaudi-docker/${GAUDI_VERSION}/ubuntu20.04/habanalabs/pytorch-installer-${PYTORCH_INSTALLER_VERSION}:${DIST}
 
diff --git a/tests/tests_pytorch/plugins/precision/hpu/test_hpu.py b/tests/tests_pytorch/plugins/precision/hpu/test_hpu.py
index e8fc226435..d28fb3434c 100644
--- a/tests/tests_pytorch/plugins/precision/hpu/test_hpu.py
+++ b/tests/tests_pytorch/plugins/precision/hpu/test_hpu.py
@@ -85,7 +85,7 @@ def test_pure_half_precision(tmpdir, hmp_params: dict):
     assert isinstance(trainer.strategy.precision_plugin, HPUPrecisionPlugin)
     assert trainer.strategy.precision_plugin.precision == 16
 
-    with pytest.raises(SystemExit):
+    with pytest.raises(RuntimeError, match=r"float16/half is not supported on Gaudi."):
         trainer.fit(model)