diff --git a/test/functional/wallet_groups.py b/test/functional/wallet_groups.py
new file mode 100755
index 000000000..8ee8e309d
--- /dev/null
+++ b/test/functional/wallet_groups.py
@@ -0,0 +1,100 @@
+#!/usr/bin/env python3
+# Copyright (c) 2018 The Bitcoin Core developers
+# Distributed under the MIT software license, see the accompanying
+# file COPYING or http://www.opensource.org/licenses/mit-license.php.
+"""Test wallet group functionality."""
+
+from test_framework.test_framework import BitcoinTestFramework
+from test_framework.messages import CTransaction, FromHex, ToHex
+from test_framework.util import (
+    assert_equal,
+)
+
+
+def assert_approx(v, vexp, vspan=0.00001):
+    if v < vexp - vspan:
+        raise AssertionError("{} < [{}..{}]".format(
+            str(v), str(vexp - vspan), str(vexp + vspan)))
+    if v > vexp + vspan:
+        raise AssertionError("{} > [{}..{}]".format(
+            str(v), str(vexp - vspan), str(vexp + vspan)))
+
+
+class WalletGroupTest(BitcoinTestFramework):
+    def set_test_params(self):
+        self.setup_clean_chain = True
+        self.num_nodes = 3
+        self.extra_args = [[], [], ['-avoidpartialspends']]
+
+    def run_test(self):
+        # Mine some coins
+        self.nodes[0].generate(110)
+
+        # Get some addresses from the two nodes
+        addr1 = [self.nodes[1].getnewaddress() for i in range(3)]
+        addr2 = [self.nodes[2].getnewaddress() for i in range(3)]
+        addrs = addr1 + addr2
+
+        # Send 1 + 0.5 coin to each address
+        [self.nodes[0].sendtoaddress(addr, 1.0) for addr in addrs]
+        [self.nodes[0].sendtoaddress(addr, 0.5) for addr in addrs]
+
+        self.nodes[0].generate(1)
+        self.sync_all()
+
+        # For each node, send 0.2 coins back to 0;
+        # - node[1] should pick one 0.5 UTXO and leave the rest
+        # - node[2] should pick one (1.0 + 0.5) UTXO group corresponding to a
+        #   given address, and leave the rest
+        txid1 = self.nodes[1].sendtoaddress(self.nodes[0].getnewaddress(), 0.2)
+        tx1 = self.nodes[1].getrawtransaction(txid1, True)
+        # txid1 should have 1 input and 2 outputs
+        assert_equal(1, len(tx1["vin"]))
+        assert_equal(2, len(tx1["vout"]))
+        # one output should be 0.2, the other should be ~0.3
+        v = [vout["value"] for vout in tx1["vout"]]
+        v.sort()
+        assert_approx(v[0], 0.2)
+        assert_approx(v[1], 0.3, 0.0001)
+
+        txid2 = self.nodes[2].sendtoaddress(self.nodes[0].getnewaddress(), 0.2)
+        tx2 = self.nodes[2].getrawtransaction(txid2, True)
+        # txid2 should have 2 inputs and 2 outputs
+        assert_equal(2, len(tx2["vin"]))
+        assert_equal(2, len(tx2["vout"]))
+        # one output should be 0.2, the other should be ~1.3
+        v = [vout["value"] for vout in tx2["vout"]]
+        v.sort()
+        assert_approx(v[0], 0.2)
+        assert_approx(v[1], 1.3, 0.0001)
+
+        # Empty out node2's wallet
+        self.nodes[2].sendtoaddress(address=self.nodes[0].getnewaddress(
+        ), amount=self.nodes[2].getbalance(), subtractfeefromamount=True)
+        self.sync_all()
+        self.nodes[0].generate(1)
+
+        # Fill node2's wallet with 10000 outputs corresponding to the same
+        # scriptPubKey
+        for i in range(5):
+            raw_tx = self.nodes[0].createrawtransaction(
+                [{"txid": "0"*64, "vout": 0}], [{addr2[0]: 0.05}])
+            tx = FromHex(CTransaction(), raw_tx)
+            tx.vin = []
+            tx.vout = [tx.vout[0]] * 2000
+            funded_tx = self.nodes[0].fundrawtransaction(ToHex(tx))
+            signed_tx = self.nodes[0].signrawtransactionwithwallet(
+                funded_tx['hex'])
+            self.nodes[0].sendrawtransaction(signed_tx['hex'])
+            self.nodes[0].generate(1)
+
+        self.sync_all()
+
+        # Check that we can create a transaction that only requires ~100 of our
+        # utxos, without pulling in all outputs and creating a transaction that
+        # is way too big.
+        assert self.nodes[2].sendtoaddress(address=addr2[0], amount=5)
+
+
+if __name__ == '__main__':
+    WalletGroupTest().main()