diff --git a/builtin/merge.c b/builtin/merge.c
index 3c4f415d87..f7c92c0e64 100644
--- a/builtin/merge.c
+++ b/builtin/merge.c
@@ -385,11 +385,11 @@ static void restore_state(const struct object_id *head,
 {
 	struct strvec args = STRVEC_INIT;
 
-	if (is_null_oid(stash))
-		return;
-
 	reset_hard(head, 1);
 
+	if (is_null_oid(stash))
+		goto refresh_cache;
+
 	strvec_pushl(&args, "stash", "apply", "--index", "--quiet", NULL);
 	strvec_push(&args, oid_to_hex(stash));
 
@@ -400,7 +400,9 @@ static void restore_state(const struct object_id *head,
 	run_command_v_opt(args.v, RUN_GIT_CMD);
 	strvec_clear(&args);
 
-	refresh_cache(REFRESH_QUIET);
+refresh_cache:
+	if (discard_cache() < 0 || read_cache() < 0)
+		die(_("could not read index"));
 }
 
 /* This is called when no merge was necessary. */
diff --git a/t/t7607-merge-state.sh b/t/t7607-merge-state.sh
new file mode 100755
index 0000000000..89a62ac53b
--- /dev/null
+++ b/t/t7607-merge-state.sh
@@ -0,0 +1,32 @@
+#!/bin/sh
+
+test_description="Test that merge state is as expected after failed merge"
+
+GIT_TEST_DEFAULT_INITIAL_BRANCH_NAME=main
+export GIT_TEST_DEFAULT_INITIAL_BRANCH_NAME
+. ./test-lib.sh
+
+test_expect_success 'Ensure we restore original state if no merge strategy handles it' '
+	test_commit --no-tag "Initial" base base &&
+
+	for b in branch1 branch2 branch3
+	do
+		git checkout -b $b main &&
+		test_commit --no-tag "Change on $b" base $b || return 1
+	done &&
+
+	git checkout branch1 &&
+	# This is a merge that octopus cannot handle.  Note, that it does not
+	# just hit conflicts, it completely fails and says that it cannot
+	# handle this type of merge.
+	test_expect_code 2 git merge branch2 branch3 >output 2>&1 &&
+	grep "fatal: merge program failed" output &&
+	grep "Should not be doing an octopus" output &&
+
+	# Make sure we did not leave stray changes around when no appropriate
+	# merge strategy was found
+	git diff --exit-code --name-status &&
+	test_path_is_missing .git/MERGE_HEAD
+'
+
+test_done