diff --git a/packages/playwright/src/runner/failureTracker.ts b/packages/playwright/src/runner/failureTracker.ts
index 6ea8f81a34..03c4c7121b 100644
--- a/packages/playwright/src/runner/failureTracker.ts
+++ b/packages/playwright/src/runner/failureTracker.ts
@@ -31,8 +31,12 @@ export class FailureTracker {
   }
 
   onTestEnd(test: TestCase, result: TestResult) {
-    if (result.status !== 'skipped' && result.status !== test.expectedStatus)
+    if (result.status === 'skipped')
+      return;
+    if (result.status !== test.expectedStatus)
       ++this._failureCount;
+    else
+      this._failureCount -= result.retry;
   }
 
   onWorkerError() {
diff --git a/tests/playwright-test/max-failures.spec.ts b/tests/playwright-test/max-failures.spec.ts
index c3bf4af834..157b18ee2d 100644
--- a/tests/playwright-test/max-failures.spec.ts
+++ b/tests/playwright-test/max-failures.spec.ts
@@ -181,3 +181,40 @@ test('max-failures should work across phases', async ({ runInlineTest }) => {
   expect(result.output).toContain('running c');
   expect(result.output).not.toContain('running d');
 });
+
+test('max-failures should not consider retries as failures', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': `
+      export default {
+        maxFailures: 10,
+        retries: 10,
+      };
+    `,
+    'example.spec.ts': `
+      import fs from 'fs';
+      import { test, expect } from '@playwright/test';
+
+      test('I fail 9 times 1', () => {
+        let count = parseInt(fs.readFileSync('count1', 'utf8'), 10);
+        count++;
+        fs.writeFileSync('count1', String(count));
+        if (count < 10)
+          throw new Error('failing intentionally');
+      });
+
+      test('I fail 9 times 2', () => {
+        let count = parseInt(fs.readFileSync('count2', 'utf8'), 10);
+        count++;
+        fs.writeFileSync('count2', String(count));
+        if (count < 10)
+          throw new Error('failing intentionally');
+      });
+    `,
+    'count1': '0',
+    'count2': '0',
+  }, { workers: 1 });
+  expect(result.exitCode).toBe(0);
+  expect(result.failed).toBe(0);
+  expect(result.flaky).toBe(2);
+  expect(result.passed).toBe(0);
+});