diff --git a/src/test/dispatcher.ts b/src/test/dispatcher.ts
index 7aafc82985..5cbaf0ed96 100644
--- a/src/test/dispatcher.ts
+++ b/src/test/dispatcher.ts
@@ -186,7 +186,7 @@ export class Dispatcher {
       // Only retry expected failures, not passes and only if the test failed.
       for (const testId of failedTestIds) {
         const pair = this._testById.get(testId)!;
-        if (pair.test.expectedStatus === 'passed' && pair.test.results.length < pair.test.retries + 1) {
+        if (!this._isStopped && pair.test.expectedStatus === 'passed' && pair.test.results.length < pair.test.retries + 1) {
           pair.result = pair.test._appendTestResult();
           remaining.unshift({
             retry: pair.result.retry,
diff --git a/tests/playwright-test/max-failures.spec.ts b/tests/playwright-test/max-failures.spec.ts
index 2724b919ee..69e88def6d 100644
--- a/tests/playwright-test/max-failures.spec.ts
+++ b/tests/playwright-test/max-failures.spec.ts
@@ -63,3 +63,19 @@ test('-x should work', async ({ runInlineTest }) => {
   expect(result.failed).toBe(1);
   expect(result.output.split('\n').filter(l => l.includes('expect(')).length).toBe(2);
 });
+
+test('max-failures should work with retries', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'a.spec.js': `
+      const { test } = pwt;
+      for (let i = 0; i < 10; ++i) {
+        test('fail_' + i, () => {
+          expect(true).toBe(false);
+        });
+      }
+    `,
+  }, { 'max-failures': 2, 'retries': 4 });
+  expect(result.exitCode).toBe(1);
+  expect(result.failed).toBe(1);
+  expect(result.output.split('\n').filter(l => l.includes('Received:')).length).toBe(2);
+});