diff --git a/crates/net/network/src/peers/manager.rs b/crates/net/network/src/peers/manager.rs
index fba99c2aad..5dcb54f4eb 100644
--- a/crates/net/network/src/peers/manager.rs
+++ b/crates/net/network/src/peers/manager.rs
@@ -1,7 +1,9 @@
 use crate::{
     error::{BackoffKind, SessionError},
     peers::{
-        reputation::{is_banned_reputation, DEFAULT_REPUTATION},
+        reputation::{
+            is_banned_reputation, DEFAULT_REPUTATION, MAX_TRUSTED_PEER_REPUTATION_CHANGE,
+        },
         ReputationChangeWeights, DEFAULT_MAX_COUNT_CONCURRENT_DIALS,
         DEFAULT_MAX_COUNT_PEERS_INBOUND, DEFAULT_MAX_COUNT_PEERS_OUTBOUND,
     },
@@ -349,15 +351,37 @@ impl PeersManager {
         self.peers.get(peer_id).map(|peer| peer.reputation)
     }
 
-    /// Apply the corresponding reputation change to the given peer
+    /// Apply the corresponding reputation change to the given peer.
+    ///
+    /// If the peer is a trusted peer, it will be exempt from reputation slashing for certain
+    /// reputation changes that can be attributed to network conditions. If the peer is a
+    /// trusted peer, it will also be less strict with the reputation slashing.
     pub(crate) fn apply_reputation_change(&mut self, peer_id: &PeerId, rep: ReputationChangeKind) {
         let outcome = if let Some(peer) = self.peers.get_mut(peer_id) {
             // First check if we should reset the reputation
             if rep.is_reset() {
                 peer.reset_reputation()
             } else {
-                let reputation_change = self.reputation_weights.change(rep);
-                peer.apply_reputation(reputation_change.as_i32())
+                let mut reputation_change = self.reputation_weights.change(rep).as_i32();
+                if peer.is_trusted() {
+                    // exempt trusted peers from reputation slashing for
+                    if matches!(
+                        rep,
+                        ReputationChangeKind::Dropped |
+                            ReputationChangeKind::BadAnnouncement |
+                            ReputationChangeKind::Timeout |
+                            ReputationChangeKind::AlreadySeenTransaction
+                    ) {
+                        return
+                    }
+
+                    // also be less strict with the reputation slashing for trusted peers
+                    if reputation_change < MAX_TRUSTED_PEER_REPUTATION_CHANGE {
+                        // this caps the reputation change to the maximum allowed for trusted peers
+                        reputation_change = MAX_TRUSTED_PEER_REPUTATION_CHANGE;
+                    }
+                }
+                peer.apply_reputation(reputation_change)
             }
         } else {
             return
@@ -1962,6 +1986,58 @@ mod tests {
         }
     }
 
+    #[tokio::test]
+    async fn test_reputation_change_trusted_peer() {
+        let peer = PeerId::random();
+        let socket_addr = SocketAddr::new(IpAddr::V4(Ipv4Addr::new(127, 0, 1, 2)), 8008);
+        let mut peers = PeersManager::default();
+        peers.add_trusted_peer(peer, socket_addr);
+
+        match event!(peers) {
+            PeerAction::PeerAdded(peer_id) => {
+                assert_eq!(peer_id, peer);
+            }
+            _ => unreachable!(),
+        }
+        match event!(peers) {
+            PeerAction::Connect { peer_id, remote_addr } => {
+                assert_eq!(peer_id, peer);
+                assert_eq!(remote_addr, socket_addr);
+            }
+            _ => unreachable!(),
+        }
+
+        assert_eq!(peers.peers.get_mut(&peer).unwrap().state, PeerConnectionState::PendingOut);
+        peers.on_active_outgoing_established(peer);
+        assert_eq!(peers.peers.get_mut(&peer).unwrap().state, PeerConnectionState::Out);
+
+        peers.apply_reputation_change(&peer, ReputationChangeKind::BadMessage);
+
+        {
+            let p = peers.peers.get(&peer).unwrap();
+            assert_eq!(p.state, PeerConnectionState::Out);
+            // not banned yet
+            assert!(!p.is_banned());
+        }
+
+        // ensure peer is banned eventually
+        loop {
+            peers.apply_reputation_change(&peer, ReputationChangeKind::BadMessage);
+
+            let p = peers.peers.get(&peer).unwrap();
+            if p.is_banned() {
+                break;
+            }
+        }
+
+        match event!(peers) {
+            PeerAction::Disconnect { peer_id, .. } => {
+                assert_eq!(peer_id, peer);
+            }
+            _ => unreachable!(),
+        }
+    }
+
     #[tokio::test]
     async fn test_reputation_management() {
         let peer = PeerId::random();
diff --git a/crates/net/network/src/peers/reputation.rs b/crates/net/network/src/peers/reputation.rs
index aa431d71d7..de5ec27484 100644
--- a/crates/net/network/src/peers/reputation.rs
+++ b/crates/net/network/src/peers/reputation.rs
@@ -37,6 +37,13 @@ const BAD_PROTOCOL_REPUTATION_CHANGE: i32 = i32::MIN;
 // todo: current value is a hint, needs to be set properly
 const BAD_ANNOUNCEMENT_REPUTATION_CHANGE: i32 = REPUTATION_UNIT;
 
+/// The maximum reputation change that can be applied to a trusted peer.
+/// This is used to prevent a single bad message from a trusted peer to cause a significant change.
+/// This gives a trusted peer more leeway when interacting with the node, which is useful for in
+/// custom setups. By not setting this to `0` we still allow trusted peer penalization but less than
+/// untrusted peers.
+pub(crate) const MAX_TRUSTED_PEER_REPUTATION_CHANGE: Reputation = 2 * REPUTATION_UNIT;
+
 /// Returns `true` if the given reputation is below the [`BANNED_REPUTATION`] threshold
 #[inline]
 pub(crate) fn is_banned_reputation(reputation: i32) -> bool {