diff --git a/CHANGELOG.md b/CHANGELOG.md
index 823c22e..b56ef38 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -7,6 +7,9 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ## [Unreleased]
 
+### Fixed
+- **`bin/rails claude_agent_sdk:install_cli` (and `CLIInstaller.install` whenever `Encoding.default_internal` is set) no longer fails with `Encoding::UndefinedConversionError`** (issue #177). The download was opened with `File::BINARY`, which is 0 outside Windows, so the file was in text mode; Rails sets `default_internal` to UTF-8, and each write then transcoded the binary chunks and raised on the first byte that is not valid UTF-8. The file is now opened with `binmode: true`.
+
 ## [1.4.1] - 2026-10-25
 
 ### Changed
diff --git a/lib/claude_agent_sdk/cli_installer.rb b/lib/claude_agent_sdk/cli_installer.rb
index 5f85955..706d8a8 100644
--- a/lib/claude_agent_sdk/cli_installer.rb
+++ b/lib/claude_agent_sdk/cli_installer.rb
@@ -178,10 +178,15 @@ def fetch_text(url, limit:)
         # place, and a rename only orders metadata. Without the sync, a power
         # loss shortly after an install could leave the published name
         # pointing at an empty or partial file.
+        #
+        # binmode, not File::BINARY: that flag is 0 outside Windows, so the
+        # file would be in text mode, and with Encoding.default_internal set
+        # (Rails sets it to UTF-8) every write would transcode the binary
+        # chunks and raise on the first byte that is not valid UTF-8 (#177).
         def download_to(url, path, max_bytes: nil)
           with_response(url) do |response|
             written = 0
-            File.open(path, File::WRONLY | File::CREAT | File::EXCL | File::BINARY, 0o600) do |file|
+            File.open(path, File::WRONLY | File::CREAT | File::EXCL, 0o600, binmode: true) do |file|
               response.read_body do |chunk|
                 written += chunk.bytesize
                 if over?(written, max_bytes)
diff --git a/spec/unit/cli_installer_spec.rb b/spec/unit/cli_installer_spec.rb
index 1f94172..27a145b 100644
--- a/spec/unit/cli_installer_spec.rb
+++ b/spec/unit/cli_installer_spec.rb
@@ -481,6 +481,26 @@ def stub_response(*chunks)
       expect(File.binread(target)).to eq('abcdef')
     end
 
+    # Issue #177: Rails sets default_internal to UTF-8, and a text-mode file
+    # transcodes each write. File::BINARY is 0 outside Windows.
+    it 'writes the bytes unchanged when Encoding.default_internal is set' do
+      payload = "\xB7\x00\xFF\xCF".b
+      stub_response(payload[0, 2], payload[2, 2])
+      target = File.join(tmp_dir, 'binary')
+      saved = Encoding.default_internal
+      verbose = $VERBOSE
+      $VERBOSE = nil # the setter warns under -W
+
+      begin
+        Encoding.default_internal = Encoding::UTF_8
+        expect(http.download_to('https://example.com/claude', target)).to eq(target)
+      ensure
+        Encoding.default_internal = saved
+        $VERBOSE = verbose
+      end
+      expect(File.binread(target)).to eq(payload)
+    end
+
     it 'aborts mid-stream once max_bytes is exceeded' do
       stub_response('a' * 4, 'b' * 4)
       target = File.join(tmp_dir, 'too-big')