diff --git a/api/src/main/java/com/cloud/vm/VirtualMachine.java b/api/src/main/java/com/cloud/vm/VirtualMachine.java
index d244de7115e8..41c9a864c9d0 100644
--- a/api/src/main/java/com/cloud/vm/VirtualMachine.java
+++ b/api/src/main/java/com/cloud/vm/VirtualMachine.java
@@ -124,6 +124,9 @@ public static StateMachine2<State, VirtualMachine.Event, VirtualMachine> getStat
             s_fsm.addTransition(new Transition<State, Event>(State.Stopping, VirtualMachine.Event.StopRequested, State.Stopping, null));
             s_fsm.addTransition(new Transition<State, Event>(State.Stopping, VirtualMachine.Event.AgentReportShutdowned, State.Stopped, Arrays.asList(new Impact[]{Impact.USAGE})));
             s_fsm.addTransition(new Transition<State, Event>(State.Expunging, VirtualMachine.Event.OperationFailed, State.Expunging,null));
+            // Note: In addition to the Stopped -> Error transition for failed VM creation,
+            // a VM can also transition from Expunging to Error on OperationFailedToError.
+            s_fsm.addTransition(new Transition<State, Event>(State.Expunging, VirtualMachine.Event.OperationFailedToError, State.Error, null));
             s_fsm.addTransition(new Transition<State, Event>(State.Expunging, VirtualMachine.Event.ExpungeOperation, State.Expunging,null));
             s_fsm.addTransition(new Transition<State, Event>(State.Error, VirtualMachine.Event.DestroyRequested, State.Expunging, null));
             s_fsm.addTransition(new Transition<State, Event>(State.Error, VirtualMachine.Event.ExpungeOperation, State.Expunging, null));
diff --git a/server/src/main/java/com/cloud/vm/UserVmManagerImpl.java b/server/src/main/java/com/cloud/vm/UserVmManagerImpl.java
index f36c851e5bb3..b3d1681b4f30 100644
--- a/server/src/main/java/com/cloud/vm/UserVmManagerImpl.java
+++ b/server/src/main/java/com/cloud/vm/UserVmManagerImpl.java
@@ -2578,6 +2578,22 @@ public boolean expunge(UserVmVO vm) {
         }
     }
 
+    private void transitionExpungingToError(long vmId) {
+        try {
+            UserVmVO vm = _vmDao.findById(vmId);
+            if (vm != null && vm.getState() == State.Expunging) {
+                boolean transitioned = _itMgr.stateTransitTo(vm, VirtualMachine.Event.OperationFailedToError, null);
+                if (transitioned) {
+                    logger.info("Transitioned VM [{}] from Expunging to Error after failed expunge", vm.getUuid());
+                } else {
+                    logger.warn("Failed to persist transition of VM [{}] from Expunging to Error after failed expunge, possibly due to concurrent update", vm.getUuid());
+                }
+            }
+        } catch (NoTransitionException e) {
+            logger.warn("Failed to transition VM to Error state: {}", e.getMessage());
+        }
+    }
+
     /**
      * Release network resources, it was done on vm stop previously.
      * @param id vm id
@@ -3561,8 +3577,19 @@ public UserVm destroyVm(DestroyVMCmd cmd) throws ResourceUnavailableException, C
         detachVolumesFromVm(vm, dataVols);
 
         UserVm destroyedVm = destroyVm(vmId, expunge);
-        if (expunge && !expunge(vm)) {
-            throw new CloudRuntimeException("Failed to expunge vm " + destroyedVm);
+        if (expunge) {
+            boolean expunged;
+            try {
+                expunged = expunge(vm);
+            } catch (RuntimeException e) {
+                logger.error("Failed to expunge VM [{}] due to: {}", vm, e.getMessage(), e);
+                transitionExpungingToError(vm.getId());
+                throw new CloudRuntimeException("Failed to expunge VM " + vm.getUuid() + " due to: " + e.getMessage(), e);
+            }
+            if (!expunged) {
+                transitionExpungingToError(vm.getId());
+                throw new CloudRuntimeException("Failed to expunge VM " + destroyedVm);
+            }
         }
 
         autoScaleManager.removeVmFromVmGroup(vmId);
diff --git a/server/src/test/java/com/cloud/vm/UserVmManagerImplTest.java b/server/src/test/java/com/cloud/vm/UserVmManagerImplTest.java
index 1ea78bff3db9..21bcec59a5d3 100644
--- a/server/src/test/java/com/cloud/vm/UserVmManagerImplTest.java
+++ b/server/src/test/java/com/cloud/vm/UserVmManagerImplTest.java
@@ -60,6 +60,7 @@
 import java.util.UUID;
 
 import com.cloud.storage.dao.SnapshotPolicyDao;
+import com.cloud.utils.fsm.NoTransitionException;
 import org.apache.cloudstack.acl.ControlledEntity;
 import org.apache.cloudstack.acl.SecurityChecker;
 import org.apache.cloudstack.api.ApiCommandResourceType;
@@ -4177,4 +4178,55 @@ public void testUnmanageUserVMSuccess() {
         verify(userVmDao, times(1)).releaseFromLockTable(vmId);
     }
 
+    @Test
+    public void testTransitionExpungingToErrorVmInExpungingState() throws Exception {
+        UserVmVO vm = mock(UserVmVO.class);
+        when(vm.getState()).thenReturn(VirtualMachine.State.Expunging);
+        when(vm.getUuid()).thenReturn("test-uuid");
+        when(userVmDao.findById(vmId)).thenReturn(vm);
+        when(virtualMachineManager.stateTransitTo(eq(vm), eq(VirtualMachine.Event.OperationFailedToError), eq(null))).thenReturn(true);
+
+        java.lang.reflect.Method method = UserVmManagerImpl.class.getDeclaredMethod("transitionExpungingToError", long.class);
+        method.setAccessible(true);
+        method.invoke(userVmManagerImpl, vmId);
+
+        Mockito.verify(virtualMachineManager).stateTransitTo(vm, VirtualMachine.Event.OperationFailedToError, null);
+    }
+
+    @Test
+    public void testTransitionExpungingToErrorVmNotInExpungingState() throws Exception {
+        UserVmVO vm = mock(UserVmVO.class);
+        when(vm.getState()).thenReturn(VirtualMachine.State.Stopped);
+        when(userVmDao.findById(vmId)).thenReturn(vm);
+
+        java.lang.reflect.Method method = UserVmManagerImpl.class.getDeclaredMethod("transitionExpungingToError", long.class);
+        method.setAccessible(true);
+        method.invoke(userVmManagerImpl, vmId);
+
+        Mockito.verify(virtualMachineManager, Mockito.never()).stateTransitTo(any(VirtualMachine.class), any(VirtualMachine.Event.class), any());
+    }
+
+    @Test
+    public void testTransitionExpungingToErrorVmNotFound() throws Exception {
+        when(userVmDao.findById(vmId)).thenReturn(null);
+
+        java.lang.reflect.Method method = UserVmManagerImpl.class.getDeclaredMethod("transitionExpungingToError", long.class);
+        method.setAccessible(true);
+        method.invoke(userVmManagerImpl, vmId);
+
+        Mockito.verify(virtualMachineManager, Mockito.never()).stateTransitTo(any(VirtualMachine.class), any(VirtualMachine.Event.class), any());
+    }
+
+    @Test
+    public void testTransitionExpungingToErrorHandlesNoTransitionException() throws Exception {
+        UserVmVO vm = mock(UserVmVO.class);
+        when(vm.getState()).thenReturn(VirtualMachine.State.Expunging);
+        when(userVmDao.findById(vmId)).thenReturn(vm);
+        when(virtualMachineManager.stateTransitTo(eq(vm), eq(VirtualMachine.Event.OperationFailedToError), eq(null)))
+                .thenThrow(new NoTransitionException("no transition"));
+
+        java.lang.reflect.Method method = UserVmManagerImpl.class.getDeclaredMethod("transitionExpungingToError", long.class);
+        method.setAccessible(true);
+        method.invoke(userVmManagerImpl, vmId);
+    }
 }