diff --git a/lib/ably/realtime/channel/channel_state_machine.rb b/lib/ably/realtime/channel/channel_state_machine.rb
index 179ef39da..12526e18a 100644
--- a/lib/ably/realtime/channel/channel_state_machine.rb
+++ b/lib/ably/realtime/channel/channel_state_machine.rb
@@ -26,12 +26,16 @@ class ChannelStateMachine
       transition :from => :detaching,    :to => [:detached, :attaching, :attached, :failed, :suspended]
       transition :from => :detached,     :to => [:attaching, :attached, :failed]
       transition :from => :suspended,    :to => [:attaching, :attached, :detached, :failed]
-      transition :from => :failed,       :to => [:attaching]
+      transition :from => :failed,       :to => [:attaching, :initialized]
 
       after_transition do |channel, transition|
         channel.synchronize_state_with_statemachine
       end
 
+      after_transition(to: [:initialized]) do |channel|
+        channel.clear_error_reason
+      end
+
       after_transition(to: [:attaching]) do |channel|
         channel.manager.attach
       end
diff --git a/lib/ably/realtime/connection/connection_manager.rb b/lib/ably/realtime/connection/connection_manager.rb
index 4672d0596..dd6f99fca 100644
--- a/lib/ably/realtime/connection/connection_manager.rb
+++ b/lib/ably/realtime/connection/connection_manager.rb
@@ -319,6 +319,15 @@ def fail_active_channels(error)
         end
       end
 
+      # @api private
+      def reintialize_failed_chanels
+        channels.select do |channel|
+          channel.failed?
+        end.each do |channel|
+          channel.transition_state_machine :initialized
+        end
+      end
+
       # When continuity on a connection is lost all messages
       # whether queued or awaiting an ACK must be NACK'd as we now have a new connection
       def nack_messages_on_all_channels(error)
diff --git a/lib/ably/realtime/connection/connection_state_machine.rb b/lib/ably/realtime/connection/connection_state_machine.rb
index c93c6a9af..e3650efaa 100644
--- a/lib/ably/realtime/connection/connection_state_machine.rb
+++ b/lib/ably/realtime/connection/connection_state_machine.rb
@@ -36,6 +36,10 @@ class ConnectionStateMachine
         connection.manager.setup_transport
       end
 
+      after_transition(to: [:connecting], from: [:failed]) do |connection|
+        connection.manager.reintialize_failed_chanels
+      end
+
       after_transition(to: [:connecting], from: [:disconnected, :suspended]) do |connection|
         connection.manager.reconnect_transport
       end
diff --git a/spec/acceptance/realtime/connection_spec.rb b/spec/acceptance/realtime/connection_spec.rb
index 196224733..074dfd5b4 100644
--- a/spec/acceptance/realtime/connection_spec.rb
+++ b/spec/acceptance/realtime/connection_spec.rb
@@ -565,6 +565,35 @@ def expect_ordered_phases
         end
       end
 
+      context 'when reconnecting a failed connection' do
+        let(:channel) { client.channel(random_str) }
+        let(:client_options) { default_options.merge(log_level: :none) }
+
+        it 'transitions all channels state to initialized and cleares error_reason' do
+          connection.on(:failed) do |connection_state_change|
+            expect(connection.error_reason).to be_a(Ably::Exceptions::BaseAblyException)
+            expect(channel.error_reason).to be_a(Ably::Exceptions::BaseAblyException)
+            expect(channel).to be_failed
+
+            connection.on(:connected) do
+              expect(connection.error_reason).to eq(nil)
+              expect(channel).to be_initialized
+              expect(channel.error_reason).to eq(nil)
+              stop_reactor
+            end
+
+            connection.connect
+          end
+
+          connection.connect do
+            channel.attach do
+              error = Ably::Exceptions::ConnectionFailed.new('forced failure', 500, 50000)
+              client.connection.manager.error_received_from_server error
+            end
+          end
+        end
+      end
+
       context 'with invalid auth details' do
         let(:client_options) { default_options.merge(key: 'this.is:invalid', log_level: :none) }