diff --git a/packages/transaction-controller/CHANGELOG.md b/packages/transaction-controller/CHANGELOG.md
index 988e9ac5eba..fdcee545726 100644
--- a/packages/transaction-controller/CHANGELOG.md
+++ b/packages/transaction-controller/CHANGELOG.md
@@ -11,6 +11,10 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 - Add `perpsAcrossDeposit` and `predictAcrossDeposit` transaction types for Across MetaMask Pay submissions ([#7886](https://github.com/MetaMask/core/pull/7886))
 
+### Fixed
+
+- Use effective recipient (decoded from tx data for token transfers) when checking for existing transactions in first-time interaction logic ([#8130](https://github.com/MetaMask/core/pull/8130))
+
 ## [62.20.0]
 
 ### Changed
diff --git a/packages/transaction-controller/src/utils/first-time-interaction.test.ts b/packages/transaction-controller/src/utils/first-time-interaction.test.ts
index 4ea633e7f96..ae130da6580 100644
--- a/packages/transaction-controller/src/utils/first-time-interaction.test.ts
+++ b/packages/transaction-controller/src/utils/first-time-interaction.test.ts
@@ -300,6 +300,108 @@ describe('updateFirstTimeInteraction', () => {
         expect(mockGetAccountAddressRelationship).toHaveBeenCalled();
         expect(mockUpdateTransactionInternal).toHaveBeenCalled();
       });
+
+      it('proceeds for ERC20 when existing tx has same contract (txParams.to) but different decoded recipient', async () => {
+        const tokenContract = '0xcontract';
+        const currentRecipient = '0xrecipientA';
+        const otherRecipient = '0xrecipientB';
+
+        const currentTx: TransactionMeta = {
+          ...mockTransactionMeta,
+          id: 'current-tx',
+          type: TransactionType.tokenMethodTransfer,
+          txParams: {
+            ...mockTransactionMeta.txParams,
+            to: tokenContract,
+            data: '0xdata',
+          },
+        } as unknown as TransactionMeta;
+
+        const existingTxSameContract: TransactionMeta = {
+          ...mockTransactionMeta,
+          id: 'existing-tx',
+          type: TransactionType.tokenMethodTransfer,
+          txParams: {
+            ...mockTransactionMeta.txParams,
+            from: '0xfrom',
+            to: tokenContract,
+            data: '0xother',
+          },
+        } as unknown as TransactionMeta;
+
+        mockDecodeTransactionData
+          .mockReturnValueOnce({
+            name: 'transfer',
+            args: { _to: currentRecipient },
+          } as unknown as ReturnType<typeof decodeTransactionData>)
+          .mockReturnValueOnce({
+            name: 'transfer',
+            args: { _to: otherRecipient },
+          } as unknown as ReturnType<typeof decodeTransactionData>);
+
+        mockGetAccountAddressRelationship.mockResolvedValue({ count: 0 });
+
+        await updateFirstTimeInteraction({
+          existingTransactions: [existingTxSameContract],
+          getTransaction: mockGetTransaction,
+          isFirstTimeInteractionEnabled: mockIsFirstTimeInteractionEnabled,
+          trace: mockTrace,
+          transactionMeta: currentTx,
+          updateTransaction: mockUpdateTransactionInternal,
+        });
+
+        expect(mockGetAccountAddressRelationship).toHaveBeenCalledWith({
+          chainId: 1,
+          to: currentRecipient,
+          from: '0xfrom',
+        });
+        expect(mockUpdateTransactionInternal).toHaveBeenCalled();
+      });
+
+      it('returns early for ERC20 when existing tx has same effective recipient (decoded)', async () => {
+        const tokenContract = '0xcontract';
+        const recipient = '0xrecipientA';
+
+        const currentTx: TransactionMeta = {
+          ...mockTransactionMeta,
+          id: 'current-tx',
+          type: TransactionType.tokenMethodTransfer,
+          txParams: {
+            ...mockTransactionMeta.txParams,
+            to: tokenContract,
+            data: '0xdata',
+          },
+        } as unknown as TransactionMeta;
+
+        const existingTxSameRecipient: TransactionMeta = {
+          ...mockTransactionMeta,
+          id: 'existing-tx',
+          type: TransactionType.tokenMethodTransfer,
+          txParams: {
+            ...mockTransactionMeta.txParams,
+            from: '0xfrom',
+            to: tokenContract,
+            data: '0xother',
+          },
+        } as unknown as TransactionMeta;
+
+        mockDecodeTransactionData.mockReturnValue({
+          name: 'transfer',
+          args: { _to: recipient },
+        } as unknown as ReturnType<typeof decodeTransactionData>);
+
+        await updateFirstTimeInteraction({
+          existingTransactions: [existingTxSameRecipient],
+          getTransaction: mockGetTransaction,
+          isFirstTimeInteractionEnabled: mockIsFirstTimeInteractionEnabled,
+          trace: mockTrace,
+          transactionMeta: currentTx,
+          updateTransaction: mockUpdateTransactionInternal,
+        });
+
+        expect(mockGetAccountAddressRelationship).not.toHaveBeenCalled();
+        expect(mockUpdateTransactionInternal).not.toHaveBeenCalled();
+      });
     });
 
     describe('API integration', () => {
diff --git a/packages/transaction-controller/src/utils/first-time-interaction.ts b/packages/transaction-controller/src/utils/first-time-interaction.ts
index 32fa4fe90ec..b9546d4d978 100644
--- a/packages/transaction-controller/src/utils/first-time-interaction.ts
+++ b/packages/transaction-controller/src/utils/first-time-interaction.ts
@@ -10,6 +10,27 @@ import { projectLogger as log } from '../logger';
 import { TransactionType } from '../types';
 import type { TransactionMeta } from '../types';
 
+const TOKEN_TRANSFER_TYPES = [
+  TransactionType.tokenMethodTransfer,
+  TransactionType.tokenMethodTransferFrom,
+];
+
+/**
+ * Returns the effective recipient for first-time-interaction checks (decoded from data for token transfers).
+ * Used when comparing existing transactions so we match by actual recipient, not txParams.to (contract for ERC20).
+ *
+ * @param tx - Transaction meta with txParams and type
+ * @returns Effective recipient address, or undefined
+ */
+function getEffectiveRecipient(tx: TransactionMeta): string | undefined {
+  const { data, to } = tx?.txParams ?? {};
+  if (data && TOKEN_TRANSFER_TYPES.includes(tx?.type as TransactionType)) {
+    const parsed = decodeTransactionData(data) as TransactionDescription;
+    return (parsed?.args?._to ?? parsed?.args?.to ?? to) as string | undefined;
+  }
+  return to;
+}
+
 type UpdateFirstTimeInteractionRequest = {
   existingTransactions: TransactionMeta[];
   getTransaction: (transactionId: string) => TransactionMeta | undefined;
@@ -60,13 +81,7 @@ export async function updateFirstTimeInteraction({
   } = transactionMeta;
 
   let recipient;
-  if (
-    data &&
-    [
-      TransactionType.tokenMethodTransfer,
-      TransactionType.tokenMethodTransferFrom,
-    ].includes(type as TransactionType)
-  ) {
+  if (data && TOKEN_TRANSFER_TYPES.includes(type as TransactionType)) {
     const parsedData = decodeTransactionData(data) as TransactionDescription;
     // _to is for ERC20, ERC721 and USDC
     // to is for ERC1155
@@ -84,16 +99,17 @@ export async function updateFirstTimeInteraction({
 
   validateParamTo(recipient);
 
+  const recipientLower = recipient?.toLowerCase();
   const existingTransaction = existingTransactions.find(
     (tx) =>
+      tx.id !== transactionId &&
       tx.chainId === chainId &&
-      tx.txParams.from.toLowerCase() === from.toLowerCase() &&
-      tx.txParams.to?.toLowerCase() === to?.toLowerCase() &&
-      tx.id !== transactionId,
+      tx.txParams?.from?.toLowerCase() === from?.toLowerCase() &&
+      getEffectiveRecipient(tx)?.toLowerCase() === recipientLower,
   );
 
-  // Check if there is an existing transaction with the same from, to, and chainId
-  // else we continue to check the account address relationship from API
+  // Skip API call only if we already have a tx with same from and same effective recipient (e.g. duplicate or pending).
+  // For ERC20, effective recipient is decoded from data; using txParams.to would wrongly match any send of that token.
   if (existingTransaction) {
     return;
   }