diff --git a/tests/core/pyspec/eth2spec/test/gloas/block_processing/test_process_withdrawals.py b/tests/core/pyspec/eth2spec/test/gloas/block_processing/test_process_withdrawals.py
new file mode 100644
index 0000000000..c032a8651b
--- /dev/null
+++ b/tests/core/pyspec/eth2spec/test/gloas/block_processing/test_process_withdrawals.py
@@ -0,0 +1,81 @@
+from tests.core.pyspec.eth2spec.test.context import (
+    spec_state_test,
+    with_gloas_and_later,
+)
+
+
+@with_gloas_and_later
+@spec_state_test
+def test_full_builder_payload_next_validator_index_bug(spec, state):
+    """
+    Documents spec bug: When all withdrawals in a full payload are builder withdrawals,
+    next_withdrawal_validator_index is calculated incorrectly.
+
+    The spec uses (withdrawals[-1].validator_index + 1) % num_validators, but builder
+    withdrawals have BUILDER_INDEX_FLAG (2^40) set in validator_index, producing
+    incorrect results.
+
+    Input State:
+        - builder_pending_withdrawals: MAX_WITHDRAWALS_PER_PAYLOAD entries
+        - All validator balances capped (no validator withdrawals)
+        - next_withdrawal_validator_index: Known starting value
+
+    Bug Demonstrated:
+        - Actual: (builder_validator_index + 1) % num_validators (incorrect)
+        - Expected: (start_index + MAX_VALIDATORS_PER_WITHDRAWALS_SWEEP) % num_validators
+
+    This test passes with current spec behavior (documenting the bug).
+    When the spec is fixed, this test should be updated to verify correct behavior.
+    """
+    # Setup: Record initial state
+    num_validators = len(state.validators)
+    starting_validator_index = state.next_withdrawal_validator_index
+
+    # Setup: Create MAX builder pending withdrawals manually
+    withdrawal_amount = spec.Gwei(1_000_000_000)
+    state.builder_pending_withdrawals = []
+    for builder_index in range(spec.MAX_WITHDRAWALS_PER_PAYLOAD):
+        state.builders[builder_index].balance = withdrawal_amount + spec.MIN_DEPOSIT_AMOUNT
+        state.builder_pending_withdrawals.append(
+            spec.BuilderPendingWithdrawal(
+                builder_index=spec.BuilderIndex(builder_index),
+                fee_recipient=state.builders[builder_index].execution_address,
+                amount=withdrawal_amount,
+            )
+        )
+
+    # Setup: Cap validator balances to prevent any sweep withdrawals
+    for i, validator in enumerate(state.validators):
+        if validator.withdrawal_credentials[0:1] == spec.ETH1_ADDRESS_WITHDRAWAL_PREFIX:
+            state.balances[i] = min(state.balances[i], spec.MAX_EFFECTIVE_BALANCE)
+
+    # Verify setup: All expected withdrawals are builder withdrawals
+    expected_result = spec.get_expected_withdrawals(state)
+    assert len(expected_result.withdrawals) == spec.MAX_WITHDRAWALS_PER_PAYLOAD
+    for w in expected_result.withdrawals:
+        assert spec.is_builder_index(w.validator_index), "All withdrawals must be builder withdrawals"
+
+    # Execute
+    pre_state = state.copy()
+    yield "pre", pre_state
+    spec.process_withdrawals(state)
+    yield "post", state
+
+    # Calculate what spec actually produces in update_next_withdrawal_validator_index (CAPELLA)
+    # expected_result.withdrawals[-1].validator_index has BUILDER_INDEX_FLAG set !!
+    assert spec.is_builder_index(expected_result.withdrawals[-1].validator_index), "Last withdrawal must be a builder withdrawal"
+    last_builder_validator_index = expected_result.withdrawals[-1].validator_index
+    buggy_result = (last_builder_validator_index + 1) % num_validators
+
+    # Calculate what the correct result should be
+    correct_result = (
+        starting_validator_index + spec.MAX_VALIDATORS_PER_WITHDRAWALS_SWEEP
+    ) % num_validators
+
+    # Assert current behavior
+    assert state.next_withdrawal_validator_index == buggy_result, (
+        f"Spec produces {state.next_withdrawal_validator_index}, expected buggy result {buggy_result}"
+    )
+    assert buggy_result != correct_result, (
+        f"Bug demonstration: spec produces {buggy_result}, correct would be {correct_result}"
+    )