diff --git a/haystack/components/generators/chat/hugging_face_api.py b/haystack/components/generators/chat/hugging_face_api.py
index 5c2947787..d48509637 100644
--- a/haystack/components/generators/chat/hugging_face_api.py
+++ b/haystack/components/generators/chat/hugging_face_api.py
@@ -80,6 +80,26 @@ def _convert_hfapi_tool_calls(hfapi_tool_calls: Optional[List["ChatCompletionOut
     return tool_calls
 
 
+def _convert_tools_to_hfapi_tools(
+    tools: Optional[Union[List[Tool], Toolset]],
+) -> Optional[List["ChatCompletionInputTool"]]:
+    if not tools:
+        return None
+
+    # huggingface_hub<0.31.0 uses "arguments", huggingface_hub>=0.31.0 uses "parameters"
+    parameters_name = "arguments" if hasattr(ChatCompletionInputFunctionDefinition, "arguments") else "parameters"
+
+    hf_tools = []
+    for tool in tools:
+        hf_tools_args = {"name": tool.name, "description": tool.description, parameters_name: tool.parameters}
+
+        hf_tools.append(
+            ChatCompletionInputTool(function=ChatCompletionInputFunctionDefinition(**hf_tools_args), type="function")
+        )
+
+    return hf_tools
+
+
 @component
 class HuggingFaceAPIChatGenerator:
     """
@@ -313,19 +333,11 @@ class HuggingFaceAPIChatGenerator:
         if streaming_callback:
             return self._run_streaming(formatted_messages, generation_kwargs, streaming_callback)
 
-        hf_tools = None
-        if tools:
-            if isinstance(tools, Toolset):
-                tools = list(tools)
-            hf_tools = [
-                ChatCompletionInputTool(
-                    function=ChatCompletionInputFunctionDefinition(
-                        name=tool.name, description=tool.description, arguments=tool.parameters
-                    ),
-                    type="function",
-                )
-                for tool in tools
-            ]
+        if tools and isinstance(tools, Toolset):
+            tools = list(tools)
+
+        hf_tools = _convert_tools_to_hfapi_tools(tools)
+
         return self._run_non_streaming(formatted_messages, generation_kwargs, hf_tools)
 
     @component.output_types(replies=List[ChatMessage])
@@ -373,19 +385,11 @@ class HuggingFaceAPIChatGenerator:
         if streaming_callback:
             return await self._run_streaming_async(formatted_messages, generation_kwargs, streaming_callback)
 
-        hf_tools = None
-        if tools:
-            if isinstance(tools, Toolset):
-                tools = list(tools)
-            hf_tools = [
-                ChatCompletionInputTool(
-                    function=ChatCompletionInputFunctionDefinition(
-                        name=tool.name, description=tool.description, arguments=tool.parameters
-                    ),
-                    type="function",
-                )
-                for tool in tools
-            ]
+        if tools and isinstance(tools, Toolset):
+            tools = list(tools)
+
+        hf_tools = _convert_tools_to_hfapi_tools(tools)
+
         return await self._run_non_streaming_async(formatted_messages, generation_kwargs, hf_tools)
 
     def _run_streaming(
diff --git a/releasenotes/notes/hf-tool-definition-0.31.0-c8403da8769fff1d.yaml b/releasenotes/notes/hf-tool-definition-0.31.0-c8403da8769fff1d.yaml
new file mode 100644
index 000000000..774a5b61c
--- /dev/null
+++ b/releasenotes/notes/hf-tool-definition-0.31.0-c8403da8769fff1d.yaml
@@ -0,0 +1,7 @@
+---
+fixes:
+  - |
+    Make internal tool conversion in the HuggingFaceAPICompatibleChatGenerator compatible with huggingface_hub>=0.31.0.
+    In the huggingface_hub library, `arguments` attribute of `ChatCompletionInputFunctionDefinition` has been renamed to
+    `parameters`.
+    Our implementation is compatible with both the legacy version and the new one.
diff --git a/test/components/generators/chat/test_hugging_face_api.py b/test/components/generators/chat/test_hugging_face_api.py
index 0bf01a775..64d66c0f9 100644
--- a/test/components/generators/chat/test_hugging_face_api.py
+++ b/test/components/generators/chat/test_hugging_face_api.py
@@ -10,6 +10,7 @@ from haystack import Pipeline
 from haystack.dataclasses import StreamingChunk
 from haystack.utils.auth import Secret
 from haystack.utils.hf import HFGenerationAPIType
+
 from huggingface_hub import (
     ChatCompletionOutput,
     ChatCompletionOutputComplete,
@@ -21,9 +22,14 @@ from huggingface_hub import (
     ChatCompletionStreamOutputChoice,
     ChatCompletionStreamOutputDelta,
 )
-from huggingface_hub.utils import RepositoryNotFoundError
+from huggingface_hub.errors import RepositoryNotFoundError
+
+from haystack.components.generators.chat.hugging_face_api import (
+    HuggingFaceAPIChatGenerator,
+    _convert_hfapi_tool_calls,
+    _convert_tools_to_hfapi_tools,
+)
 
-from haystack.components.generators.chat.hugging_face_api import HuggingFaceAPIChatGenerator, _convert_hfapi_tool_calls
 from haystack.tools import Tool
 from haystack.dataclasses import ChatMessage, ToolCall
 from haystack.tools.toolset import Toolset
@@ -980,3 +986,41 @@ class TestHuggingFaceAPIChatGenerator:
             },
         }
         assert data["init_parameters"]["tools"] == expected_tools_data
+
+    def test_convert_tools_to_hfapi_tools(self):
+        assert _convert_tools_to_hfapi_tools(None) is None
+        assert _convert_tools_to_hfapi_tools([]) is None
+
+        tool = Tool(
+            name="weather",
+            description="useful to determine the weather in a given location",
+            parameters={"city": {"type": "string"}},
+            function=get_weather,
+        )
+        hf_tools = _convert_tools_to_hfapi_tools([tool])
+        assert len(hf_tools) == 1
+        assert hf_tools[0].type == "function"
+        assert hf_tools[0].function.name == "weather"
+        assert hf_tools[0].function.description == "useful to determine the weather in a given location"
+        assert hf_tools[0].function.parameters == {"city": {"type": "string"}}
+
+    def test_convert_tools_to_hfapi_tools_legacy(self):
+        # this satisfies the check hasattr(ChatCompletionInputFunctionDefinition, "arguments")
+        mock_class = MagicMock()
+
+        with patch(
+            "haystack.components.generators.chat.hugging_face_api.ChatCompletionInputFunctionDefinition", mock_class
+        ):
+            tool = Tool(
+                name="weather",
+                description="useful to determine the weather in a given location",
+                parameters={"city": {"type": "string"}},
+                function=get_weather,
+            )
+            _convert_tools_to_hfapi_tools([tool])
+
+        mock_class.assert_called_once_with(
+            name="weather",
+            arguments={"city": {"type": "string"}},
+            description="useful to determine the weather in a given location",
+        )