diff --git a/python/tvm_ffi/error.py b/python/tvm_ffi/error.py
index 015fe805..4b4a8c26 100644
--- a/python/tvm_ffi/error.py
+++ b/python/tvm_ffi/error.py
@@ -121,8 +121,18 @@ def append_traceback(
             The new traceback with the appended frame.
 
         """
-        frame = self._create_frame(filename, lineno, func)
-        return types.TracebackType(tb, frame, frame.f_lasti, lineno)
+
+        # This approach avoids binding the created frame object to a local variable
+        # in `append_traceback`, which would create a reference cycle. By using a
+        # nested function, the frame object is a temporary that is not held by
+        # the locals of `append_traceback`. See the diagram in `_with_append_backtrace`
+        # and PR #327 for more details.
+        def create(
+            tb: types.TracebackType | None, frame: types.FrameType, lineno: int
+        ) -> types.TracebackType:
+            return types.TracebackType(tb, frame, frame.f_lasti, lineno)
+
+        return create(tb, self._create_frame(filename, lineno, func), lineno)
 
 
 _TRACEBACK_MANAGER = TracebackManager()
@@ -130,10 +140,47 @@ def append_traceback(
 
 def _with_append_backtrace(py_error: BaseException, backtrace: str) -> BaseException:
     """Append the backtrace to the py_error and return it."""
+    # We manually delete py_error and tb to avoid reference cycle, making it faster to gc the locals inside the frame
+    # please see pull request #327 for more details
+    #
+    # Memory Cycle Diagram:
+    #
+    #         [Stack Frames]                            [Heap Objects]
+    #     +-------------------+
+    #     | outside functions | -----------------------> [ Tensor ]
+    #     +-------------------+                   (Held by cycle, slow to free)
+    #             ^
+    #             | f_back
+    #     +-------------------+  locals      py_error
+    #     | py_error (this)   | -----+--------------> [ BaseException ]
+    #     +-------------------+      |                       |
+    #             ^                  |                       | (with_traceback)
+    #             | f_back           |                       v
+    #     +-------------------+      +--------------> [ Traceback Obj ]
+    #     | append_traceback  |                   tb         |
+    #     +-------------------+                              |
+    #             ^                                          |
+    #             | f_back                                   |
+    #     +-------------------+                              |
+    #     | _create_frame     |                              |
+    #     +-------------------+                              |
+    #             ^                                          |
+    #             | f_back                                   |
+    #     +-------------------+                              |
+    #     | _get_frame        | <----------------------------+
+    #     +-------------------+      (Cycle closes here)
     tb = py_error.__traceback__
-    for filename, lineno, func in _parse_backtrace(backtrace):
-        tb = _TRACEBACK_MANAGER.append_traceback(tb, filename, lineno, func)
-    return py_error.with_traceback(tb)
+    try:
+        for filename, lineno, func in _parse_backtrace(backtrace):
+            tb = _TRACEBACK_MANAGER.append_traceback(tb, filename, lineno, func)
+        return py_error.with_traceback(tb)
+    finally:
+        # We explicitly break the reference cycle here. The `finally` block is
+        # executed just before the function returns, after the `return` expression
+        # in the `try` block has been evaluated. Deleting `py_error` and `tb`
+        # here ensures they are not held by this function's frame's locals,
+        # which resolves the cycle.
+        del py_error, tb
 
 
 def _traceback_to_backtrace_str(tb: types.TracebackType | None) -> str:
diff --git a/tests/python/test_error.py b/tests/python/test_error.py
index dd94cf39..068fb3fd 100644
--- a/tests/python/test_error.py
+++ b/tests/python/test_error.py
@@ -16,6 +16,8 @@
 # under the License.
 
 
+import gc
+import weakref
 from typing import NoReturn
 
 import pytest
@@ -113,3 +115,39 @@ def raise_cxx_error() -> None:
         ffi_error2 = fecho(e)
         assert ffi_error1.backtrace.find("raise_cxx_error") != -1
         assert ffi_error2.backtrace.find("raise_cxx_error") != -1
+
+
+def test_error_no_cyclic_reference() -> None:
+    # This test case ensures that when an error is raised from C++ side,
+    # there is no cyclic reference that slows down the garbage collection.
+    # Please see `_with_append_backtrace` in error.py
+
+    # temporarily disable gc
+    gc.disable()
+
+    try:
+        # We should create a class as a probe to detect gc activity
+        # beacuse weakref doesn't support list, dict or other trivial types
+        class SampleObject: ...
+
+        # trigger a C++ side KeyError by accessing a non-existent key
+        def trigger_cpp_side_error() -> None:
+            try:
+                tmp_map: tvm_ffi.Map = tvm_ffi.Map(dict())
+                tmp_map["a"]
+            except KeyError:
+                pass
+
+        def may_create_cyclic_reference() -> weakref.ReferenceType:
+            obj = SampleObject()
+            trigger_cpp_side_error()
+            return weakref.ref(obj)
+
+        wref = may_create_cyclic_reference()
+
+        # if the object is not collected, wref() will return the object
+        assert wref() is None, "Cyclic reference occurs inside error handling pipeline"
+
+    finally:
+        # re-enable gc whenever exception occurs
+        gc.enable()