diff --git a/runners/google-cloud-dataflow-java/worker/src/main/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutor.java b/runners/google-cloud-dataflow-java/worker/src/main/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutor.java
index 8964246c1160..d9f4ae96476b 100644
--- a/runners/google-cloud-dataflow-java/worker/src/main/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutor.java
+++ b/runners/google-cloud-dataflow-java/worker/src/main/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutor.java
@@ -391,12 +391,18 @@ BoundedQueueExecutorWorkHandleImpl createBudgetHandle(int elements, long bytes)
     if (keyGroupWorkQueue == null) {
       return null;
     }
-    @Nullable QueuedWork queuedWork = keyGroupWorkQueue.pollWork(computationId, keyGroup);
-    if (queuedWork == null) {
-      return null;
+    while (true) {
+      @Nullable QueuedWork queuedWork = keyGroupWorkQueue.pollWork(computationId, keyGroup);
+      if (queuedWork == null) {
+        return null;
+      }
+      if (queuedWork.getWork().work().isFailed()) {
+        queuedWork.getHandle().close();
+      } else {
+        internalHandle.merge(queuedWork.getHandle());
+        return queuedWork.getWork();
+      }
     }
-    internalHandle.merge(queuedWork.getHandle());
-    return queuedWork.getWork();
   }
 
   private void decrementCounters(int elements, long bytes) {
diff --git a/runners/google-cloud-dataflow-java/worker/src/test/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutorTest.java b/runners/google-cloud-dataflow-java/worker/src/test/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutorTest.java
index a98102751fb2..c39b7f3a1d4d 100644
--- a/runners/google-cloud-dataflow-java/worker/src/test/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutorTest.java
+++ b/runners/google-cloud-dataflow-java/worker/src/test/java/org/apache/beam/runners/dataflow/worker/util/BoundedQueueExecutorTest.java
@@ -553,4 +553,74 @@ public void testPollWorkWithLinkedBlockingQueue() throws Exception {
     blockerStop.countDown();
     testExecutor.shutdown();
   }
+
+  @Test
+  public void testPollWorkDropsFailedWork() throws Exception {
+    BoundedQueueExecutor testExecutor =
+        new BoundedQueueExecutor(
+            /* initialMaximumPoolSize= */ 1,
+            /* keepAliveTime= */ 60,
+            /* unit= */ TimeUnit.SECONDS,
+            /* maximumElementsOutstanding= */ 100,
+            /* maximumBytesOutstanding= */ 10000000,
+            new ThreadFactoryBuilder().setNameFormat("testStealing-%d").setDaemon(true).build(),
+            useFairMonitor,
+            /*useKeyGroupWorkQueue=*/ true);
+
+    // Create blocker task to occupy the worker thread
+    CountDownLatch blockerStart = new CountDownLatch(1);
+    CountDownLatch blockerStop = new CountDownLatch(1);
+    ExecutableWork blockerWork =
+        createWorkWithCompIdAndKeyGroup(
+            "blockerComp",
+            DEFAULT_KEY_GROUP,
+            ignored -> {
+              blockerStart.countDown();
+              try {
+                blockerStop.await();
+              } catch (InterruptedException e) {
+                throw new RuntimeException(e);
+              }
+            });
+
+    testExecutor.execute(blockerWork, 0);
+    blockerStart.await();
+
+    Work.KeyGroup keyGroup1 = Work.KeyGroup.create(1, 1);
+
+    // Create executable tasks
+    ExecutableWork work1 = createWorkWithCompIdAndKeyGroup("compA", keyGroup1, ignored -> {});
+    ExecutableWork work2 = createWorkWithCompIdAndKeyGroup("compA", keyGroup1, ignored -> {});
+
+    // Mark work1 as failed
+    work1.work().setFailed();
+    try {
+
+      // Enqueue tasks
+      testExecutor.execute(work1, 100);
+      testExecutor.execute(work2, 150);
+
+      // Total outstanding elements must be 3 (blocker + work1 + work2)
+      assertEquals(3, testExecutor.elementsOutstanding());
+
+      // Steal work from keyGroup1.
+      // The first work in queue is work1, which is failed.
+      // It should be dropped, its handle closed, and work2 should be returned.
+      try (BoundedQueueExecutorWorkHandleImpl stealHandle =
+          testExecutor.createBudgetHandle(0, 0L)) {
+        ExecutableWork stolen = testExecutor.pollWork("compA", keyGroup1, stealHandle);
+        assertNotNull(stolen);
+        assertEquals(work2, stolen);
+        // blocker (1) + work2 (1) = 2. work1 (1) should have been released.
+        assertEquals(2, testExecutor.elementsOutstanding());
+      }
+      // work2 should also be released now because stealHandle is closed.
+      // blocker (1) = 1.
+      assertEquals(1, testExecutor.elementsOutstanding());
+    } finally {
+      // Unblock the blocker and shut down
+      blockerStop.countDown();
+      testExecutor.shutdown();
+    }
+  }
 }