diff --git a/CHANGELOG.md b/CHANGELOG.md
index 4b99d5e7fb47..4106eb6634ca 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -39,7 +39,8 @@ Ref: https://keepachangelog.com/en/1.0.0/
 
 ### Bug Fixes
 
-* [#16547](https://github.com/cosmos/cosmos-sdk/pull/16547) Ensure a transaction's gas limit cannot exceed the block gas limit.
+* (baseapp) [#17159](https://github.com/cosmos/cosmos-sdk/pull/17159) Validators can propose blocks that exceed the gas limit.
+* (baseapp) [#16547](https://github.com/cosmos/cosmos-sdk/pull/16547) Ensure a transaction's gas limit cannot exceed the block gas limit.
 
 ## [v0.47.4](https://github.com/cosmos/cosmos-sdk/releases/tag/v0.47.4) - 2023-07-17
 
diff --git a/baseapp/abci_test.go b/baseapp/abci_test.go
index 33a241395413..766451d1c610 100644
--- a/baseapp/abci_test.go
+++ b/baseapp/abci_test.go
@@ -1490,6 +1490,47 @@ func TestABCI_PrepareProposal_BadEncoding(t *testing.T) {
 	require.Equal(t, 1, len(resPrepareProposal.Txs))
 }
 
+func TestABCI_PrepareProposal_OverGasUnderBytes(t *testing.T) {
+	pool := mempool.NewSenderNonceMempool()
+	suite := NewBaseAppSuite(t, baseapp.SetMempool(pool))
+	baseapptestutil.RegisterCounterServer(suite.baseApp.MsgServiceRouter(), NoopCounterServerImpl{})
+
+	// set max block gas limit to 99, this will allow 9 txs of 10 gas each.
+	_, err := suite.baseApp.InitChain(&abci.RequestInitChain{
+		ConsensusParams: &cmtproto.ConsensusParams{
+			Block: &cmtproto.BlockParams{MaxGas: 99},
+		},
+	})
+
+	require.NoError(t, err)
+	// insert 100 txs, each with a gas limit of 10
+	_, _, addr := testdata.KeyTestPubAddr()
+	for i := int64(0); i < 100; i++ {
+		msg := &baseapptestutil.MsgCounter{Counter: i, FailOnHandler: false, Signer: addr.String()}
+		msgs := []sdk.Msg{msg}
+
+		builder := suite.txConfig.NewTxBuilder()
+		err = builder.SetMsgs(msgs...)
+		require.NoError(t, err)
+		builder.SetMemo("counter=" + strconv.FormatInt(i, 10) + "&failOnAnte=false")
+		builder.SetGasLimit(10)
+		setTxSignature(t, builder, uint64(i))
+
+		err := pool.Insert(sdk.Context{}, builder.GetTx())
+		require.NoError(t, err)
+	}
+
+	// ensure we only select transactions that fit within the block gas limit
+	res, err := suite.baseApp.PrepareProposal(&abci.RequestPrepareProposal{
+		MaxTxBytes: 1_000_000, // large enough to ignore restriction
+		Height:     1,
+	})
+	require.NoError(t, err)
+
+	// Should include 9 transactions
+	require.Len(t, res.Txs, 9, "invalid number of transactions returned")
+}
+
 func TestABCI_PrepareProposal_MaxGas(t *testing.T) {
 	pool := mempool.NewSenderNonceMempool()
 	suite := NewBaseAppSuite(t, baseapp.SetMempool(pool))
diff --git a/baseapp/abci_utils.go b/baseapp/abci_utils.go
index 930be5cd8197..9b91a98254b0 100644
--- a/baseapp/abci_utils.go
+++ b/baseapp/abci_utils.go
@@ -230,10 +230,12 @@ func (h DefaultProposalHandler) PrepareProposalHandler() sdk.PrepareProposalHand
 				if (txSize + totalTxBytes) < req.MaxTxBytes {
 					// If there is a max block gas limit, add the tx only if the limit has
 					// not been met.
-					if maxBlockGas > 0 && (txGasLimit+totalTxGas) <= uint64(maxBlockGas) {
-						totalTxGas += txGasLimit
-						totalTxBytes += txSize
-						selectedTxs = append(selectedTxs, bz)
+					if maxBlockGas > 0 {
+						if (txGasLimit + totalTxGas) <= uint64(maxBlockGas) {
+							totalTxGas += txGasLimit
+							totalTxBytes += txSize
+							selectedTxs = append(selectedTxs, bz)
+						}
 					} else {
 						totalTxBytes += txSize
 						selectedTxs = append(selectedTxs, bz)