diff --git a/ironic/common/states.py b/ironic/common/states.py
index f5a620f992..a7cb822adf 100644
--- a/ironic/common/states.py
+++ b/ironic/common/states.py
@@ -667,6 +667,12 @@ machine.add_transition(SERVICEFAIL, SERVICING, 'service')
 # A node in service fail can be rescued
 machine.add_transition(SERVICEFAIL, RESCUING, 'rescue')
 
+# A node in service fail can enter wait state
+machine.add_transition(SERVICEFAIL, SERVICEWAIT, 'wait')
+
+# A node in service fail can be held
+machine.add_transition(SERVICEFAIL, SERVICEHOLD, 'hold')
+
 # A node in service fail may be deleted.
 machine.add_transition(SERVICEFAIL, DELETING, 'delete')
 
diff --git a/ironic/tests/unit/conductor/test_servicing.py b/ironic/tests/unit/conductor/test_servicing.py
index b46394df9b..9057f0e173 100644
--- a/ironic/tests/unit/conductor/test_servicing.py
+++ b/ironic/tests/unit/conductor/test_servicing.py
@@ -949,6 +949,32 @@ class DoNodeServiceTestCase(db_base.DbTestCase):
         # Start is the continuation from a heartbeat.
         self._test_do_next_service_step_handles_hold(states.SERVICEWAIT)
 
+    def test_do_next_service_step_handles_hold_from_failed(self):
+        # Test that hold step from SERVICEFAIL transitions to SERVICEHOLD
+        self._test_do_next_service_step_handles_hold(states.SERVICEFAIL)
+
+    def test_do_next_service_step_handles_wait_from_failed(self):
+        # Test that wait step from SERVICEFAIL transitions to SERVICEWAIT
+        node = obj_utils.create_test_node(
+            self.context, driver='fake-hardware',
+            provision_state=states.SERVICEFAIL,
+            driver_internal_info={
+                'service_steps': [
+                    {
+                        'step': 'wait',
+                        'priority': 10,
+                        'interface': 'power'
+                    }
+                ],
+                'service_step_index': None},
+            service_step=None)
+
+        with task_manager.acquire(
+                self.context, node.uuid, shared=False) as task:
+            servicing.do_next_service_step(task, 0)
+        node.refresh()
+        self.assertEqual(states.SERVICEWAIT, node.provision_state)
+
     @mock.patch.object(servicing, 'do_next_service_step', autospec=True)
     def _continue_node_service(self, mock_next_step, skip=True):
         # test that skipping current step mechanism works
diff --git a/releasenotes/notes/fix-service-failed-wait-hold-transitions-c83ef2b376ae04fe.yaml b/releasenotes/notes/fix-service-failed-wait-hold-transitions-c83ef2b376ae04fe.yaml
new file mode 100644
index 0000000000..1d3d6029ed
--- /dev/null
+++ b/releasenotes/notes/fix-service-failed-wait-hold-transitions-c83ef2b376ae04fe.yaml
@@ -0,0 +1,9 @@
+---
+fixes:
+  - |
+    Fixes bug where reserved service steps (wait, hold) executed on nodes in
+    "service failed" state would incorrectly transition the node directly to
+    "active" state, bypassing the expected intermediate wait/hold states.
+    Now nodes in "service failed" state properly transition to "service wait"
+    or "service hold" when wait/hold steps are executed, maintaining the
+    expected state machine flow.