diff --git a/src/net_processing.cpp b/src/net_processing.cpp
--- a/src/net_processing.cpp
+++ b/src/net_processing.cpp
@@ -3333,9 +3333,8 @@
 
     if (msg_type == NetMsgType::TX) {
         // Stop processing the transaction early if
-        // We are in blocks only mode and peer is either not whitelisted or
-        // whitelistrelay is off or if this peer is supposed to be a
-        // block-relay-only peer
+        // 1) We are in blocks only mode and peer has no relay permission
+        // 2) This peer is a block-relay-only peer
         if ((!g_relay_txes && !pfrom.HasPermission(PF_RELAY)) ||
             (pfrom.m_tx_relay == nullptr)) {
             LogPrint(BCLog::NET,
diff --git a/test/functional/p2p_blocksonly.py b/test/functional/p2p_blocksonly.py
--- a/test/functional/p2p_blocksonly.py
+++ b/test/functional/p2p_blocksonly.py
@@ -64,6 +64,44 @@
             self.nodes[0].p2p.wait_for_tx(txid)
             assert_equal(self.nodes[0].getmempoolinfo()['size'], 1)
 
+        self.log.info(
+            'Check that txs from whitelisted peers are not rejected and relayed to others')
+        self.log.info(
+            "Restarting node 0 with whitelist permission and blocksonly")
+        self.restart_node(0,
+                          ["-persistmempool=0",
+                           "-whitelist=127.0.0.1",
+                           "-whitelistforcerelay",
+                           "-blocksonly"])
+        assert_equal(self.nodes[0].getrawmempool(), [])
+        first_peer = self.nodes[0].add_p2p_connection(P2PInterface())
+        second_peer = self.nodes[0].add_p2p_connection(P2PInterface())
+        peer_1_info = self.nodes[0].getpeerinfo()[0]
+        assert_equal(peer_1_info['whitelisted'], True)
+        assert_equal(
+            peer_1_info['permissions'], [
+                'noban', 'forcerelay', 'relay', 'mempool'])
+        peer_2_info = self.nodes[0].getpeerinfo()[1]
+        assert_equal(peer_2_info['whitelisted'], True)
+        assert_equal(
+            peer_2_info['permissions'], [
+                'noban', 'forcerelay', 'relay', 'mempool'])
+        assert_equal(
+            self.nodes[0].testmempoolaccept(
+                [sigtx])[0]['allowed'], True)
+        txid = self.nodes[0].testmempoolaccept([sigtx])[0]['txid']
+
+        self.log.info(
+            'Check that the tx from whitelisted first_peer is relayed to others (ie.second_peer)')
+        with self.nodes[0].assert_debug_log(["received getdata"]):
+            first_peer.send_message(msg_tx(FromHex(CTransaction(), sigtx)))
+            self.log.info(
+                'Check that the whitelisted peer is still connected after sending the transaction')
+            assert_equal(first_peer.is_connected, True)
+            second_peer.wait_for_tx(txid)
+            assert_equal(self.nodes[0].getmempoolinfo()['size'], 1)
+        self.log.info("Whitelisted peer's transaction is accepted and relayed")
+
 
 if __name__ == '__main__':
     P2PBlocksOnly().main()