diff --git a/drivers/bus/mhi/host/init.c b/drivers/bus/mhi/host/init.c
index 04fbccff65ac..60c1df048fa2 100644
--- a/drivers/bus/mhi/host/init.c
+++ b/drivers/bus/mhi/host/init.c
@@ -62,6 +62,7 @@ static const char * const mhi_pm_state_str[] = {
 	[MHI_PM_STATE_FW_DL_ERR] = "Firmware Download Error",
 	[MHI_PM_STATE_SYS_ERR_DETECT] = "SYS ERROR Detect",
 	[MHI_PM_STATE_SYS_ERR_PROCESS] = "SYS ERROR Process",
+	[MHI_PM_STATE_SYS_ERR_FAIL] = "SYS ERROR Failure",
 	[MHI_PM_STATE_SHUTDOWN_PROCESS] = "SHUTDOWN Process",
 	[MHI_PM_STATE_LD_ERR_FATAL_DETECT] = "Linkdown or Error Fatal Detect",
 };
diff --git a/drivers/bus/mhi/host/internal.h b/drivers/bus/mhi/host/internal.h
index 01fd10a399b6..6abf09da4f61 100644
--- a/drivers/bus/mhi/host/internal.h
+++ b/drivers/bus/mhi/host/internal.h
@@ -88,6 +88,7 @@ enum mhi_pm_state {
 	MHI_PM_STATE_FW_DL_ERR,
 	MHI_PM_STATE_SYS_ERR_DETECT,
 	MHI_PM_STATE_SYS_ERR_PROCESS,
+	MHI_PM_STATE_SYS_ERR_FAIL,
 	MHI_PM_STATE_SHUTDOWN_PROCESS,
 	MHI_PM_STATE_LD_ERR_FATAL_DETECT,
 	MHI_PM_STATE_MAX
@@ -104,14 +105,16 @@ enum mhi_pm_state {
 #define MHI_PM_FW_DL_ERR				BIT(7)
 #define MHI_PM_SYS_ERR_DETECT				BIT(8)
 #define MHI_PM_SYS_ERR_PROCESS				BIT(9)
-#define MHI_PM_SHUTDOWN_PROCESS				BIT(10)
+#define MHI_PM_SYS_ERR_FAIL				BIT(10)
+#define MHI_PM_SHUTDOWN_PROCESS				BIT(11)
 /* link not accessible */
-#define MHI_PM_LD_ERR_FATAL_DETECT			BIT(11)
+#define MHI_PM_LD_ERR_FATAL_DETECT			BIT(12)
 
 #define MHI_REG_ACCESS_VALID(pm_state)			((pm_state & (MHI_PM_POR | MHI_PM_M0 | \
 						MHI_PM_M2 | MHI_PM_M3_ENTER | MHI_PM_M3_EXIT | \
 						MHI_PM_SYS_ERR_DETECT | MHI_PM_SYS_ERR_PROCESS | \
-						MHI_PM_SHUTDOWN_PROCESS | MHI_PM_FW_DL_ERR)))
+						MHI_PM_SYS_ERR_FAIL | MHI_PM_SHUTDOWN_PROCESS |  \
+						MHI_PM_FW_DL_ERR)))
 #define MHI_PM_IN_ERROR_STATE(pm_state)			(pm_state >= MHI_PM_FW_DL_ERR)
 #define MHI_PM_IN_FATAL_STATE(pm_state)			(pm_state == MHI_PM_LD_ERR_FATAL_DETECT)
 #define MHI_DB_ACCESS_VALID(mhi_cntrl)			(mhi_cntrl->pm_state & mhi_cntrl->db_access)
diff --git a/drivers/bus/mhi/host/pm.c b/drivers/bus/mhi/host/pm.c
index 8a4362d75fc4..27f8a40f288c 100644
--- a/drivers/bus/mhi/host/pm.c
+++ b/drivers/bus/mhi/host/pm.c
@@ -36,7 +36,10 @@
  *     M0 <--> M0
  *     M0 -> FW_DL_ERR
  *     M0 -> M3_ENTER -> M3 -> M3_EXIT --> M0
- * L1: SYS_ERR_DETECT -> SYS_ERR_PROCESS --> POR
+ * L1: SYS_ERR_DETECT -> SYS_ERR_PROCESS
+ *     SYS_ERR_PROCESS -> SYS_ERR_FAIL
+ *     SYS_ERR_FAIL -> SYS_ERR_DETECT
+ *     SYS_ERR_PROCESS --> POR
  * L2: SHUTDOWN_PROCESS -> LD_ERR_FATAL_DETECT
  *     SHUTDOWN_PROCESS -> DISABLE
  * L3: LD_ERR_FATAL_DETECT <--> LD_ERR_FATAL_DETECT
@@ -93,7 +96,12 @@ static const struct mhi_pm_transitions dev_state_transitions[] = {
 	},
 	{
 		MHI_PM_SYS_ERR_PROCESS,
-		MHI_PM_POR | MHI_PM_SHUTDOWN_PROCESS |
+		MHI_PM_POR | MHI_PM_SYS_ERR_FAIL | MHI_PM_SHUTDOWN_PROCESS |
+		MHI_PM_LD_ERR_FATAL_DETECT
+	},
+	{
+		MHI_PM_SYS_ERR_FAIL,
+		MHI_PM_SYS_ERR_DETECT | MHI_PM_SHUTDOWN_PROCESS |
 		MHI_PM_LD_ERR_FATAL_DETECT
 	},
 	/* L2 States */
@@ -624,7 +632,13 @@ static void mhi_pm_sys_error_transition(struct mhi_controller *mhi_cntrl)
 					!in_reset, timeout);
 		if (!ret || in_reset) {
 			dev_err(dev, "Device failed to exit MHI Reset state\n");
-			goto exit_sys_error_transition;
+			write_lock_irq(&mhi_cntrl->pm_lock);
+			cur_state = mhi_tryset_pm_state(mhi_cntrl,
+							MHI_PM_SYS_ERR_FAIL);
+			write_unlock_irq(&mhi_cntrl->pm_lock);
+			/* Shutdown may have occurred, otherwise cleanup now */
+			if (cur_state != MHI_PM_SYS_ERR_FAIL)
+				goto exit_sys_error_transition;
 		}
 
 		/*