diff --git a/codec-http2/src/main/java/io/netty/handler/codec/http2/DefaultHttp2Connection.java b/codec-http2/src/main/java/io/netty/handler/codec/http2/DefaultHttp2Connection.java
index 957f2c8b8e..7c2a62bb5c 100644
--- a/codec-http2/src/main/java/io/netty/handler/codec/http2/DefaultHttp2Connection.java
+++ b/codec-http2/src/main/java/io/netty/handler/codec/http2/DefaultHttp2Connection.java
@@ -886,7 +886,10 @@ public class DefaultHttp2Connection implements Http2Connection {
                         streamId, nextStreamIdToCreate);
             }
             if (nextStreamIdToCreate <= 0) {
-                throw connectionError(REFUSED_STREAM, "Stream IDs are exhausted for this endpoint.");
+                // We exhausted the stream id space that we  can use. Let's signal this back but also signal that
+                // we still may want to process active streams.
+                throw new Http2Exception(REFUSED_STREAM, "Stream IDs are exhausted for this endpoint.",
+                        Http2Exception.ShutdownHint.GRACEFUL_SHUTDOWN);
             }
             boolean isReserved = state == RESERVED_LOCAL || state == RESERVED_REMOTE;
             if (!isReserved && !canOpenStream() || isReserved && numStreams >= maxStreams) {
diff --git a/codec-http2/src/test/java/io/netty/handler/codec/http2/DefaultHttp2ConnectionTest.java b/codec-http2/src/test/java/io/netty/handler/codec/http2/DefaultHttp2ConnectionTest.java
index 9cc072e199..777bea5957 100644
--- a/codec-http2/src/test/java/io/netty/handler/codec/http2/DefaultHttp2ConnectionTest.java
+++ b/codec-http2/src/test/java/io/netty/handler/codec/http2/DefaultHttp2ConnectionTest.java
@@ -351,6 +351,18 @@ public class DefaultHttp2ConnectionTest {
         incrementAndGetStreamShouldRespectOverflow(client.local(), MAX_VALUE);
     }
 
+    @Test
+    public void clientLocalCreateStreamExhaustedSpace() throws Http2Exception {
+        client.local().createStream(MAX_VALUE, true);
+        try {
+            client.local().createStream(MAX_VALUE, true);
+            fail();
+        } catch (Http2Exception expected) {
+            assertEquals(Http2Error.REFUSED_STREAM, expected.error());
+            assertEquals(Http2Exception.ShutdownHint.GRACEFUL_SHUTDOWN, expected.shutdownHint());
+        }
+    }
+
     @Test(expected = Http2Exception.class)
     public void newStreamBehindExpectedShouldThrow() throws Http2Exception {
         server.local().createStream(0, true);