diff --git a/erpnext/controllers/queries.py b/erpnext/controllers/queries.py
index 8de84a3044f..931d6361efe 100644
--- a/erpnext/controllers/queries.py
+++ b/erpnext/controllers/queries.py
@@ -216,11 +216,8 @@ def item_query(doctype, txt, searchfield, start, page_len, filters, as_dict=Fals
 			group = "Customer Group" if filters.get("customer") else "Supplier Group"
 			item_rules_list = frappe.get_all(
 				"Party Specific Item",
-				filters={
-					"party": ["!=", party],
-					"party_type": party_type,
-				},
-				fields=["restrict_based_on", "based_on_value"],
+				filters={"party_type": party_type},
+				fields=["party", "restrict_based_on", "based_on_value"],
 			)
 
 			party_group_rules_list = frappe.get_all(
@@ -229,21 +226,30 @@ def item_query(doctype, txt, searchfield, start, page_len, filters, as_dict=Fals
 				fields=["party as party_group", "restrict_based_on", "based_on_value"],
 			)
 			current_party_group = frappe.get_value(party_type, party, frappe.scrub(group))
+
+			restricted_items = defaultdict(set)
+			allowed_items = defaultdict(set)
+
+			for rule in item_rules_list:
+				restrict_based_on = "name" if rule.restrict_based_on == "Item" else rule.restrict_based_on
+
+				if rule.party == party:
+					allowed_items[restrict_based_on].add(rule.based_on_value)
+				else:
+					restricted_items[restrict_based_on].add(rule.based_on_value)
+
 			for rule in party_group_rules_list:
-				if current_party_group != rule.party_group:
-					item_rules_list.append(rule)
+				restrict_based_on = "name" if rule.restrict_based_on == "Item" else rule.restrict_based_on
 
-			filters_dict = {}
-			for rule in item_rules_list:
-				if rule["restrict_based_on"] == "Item":
-					rule["restrict_based_on"] = "name"
-				filters_dict[rule.restrict_based_on] = []
+				if current_party_group == rule.party_group:
+					allowed_items[restrict_based_on].add(rule.based_on_value)
+				else:
+					restricted_items[restrict_based_on].add(rule.based_on_value)
 
-			for rule in item_rules_list:
-				filters_dict[rule.restrict_based_on].append(rule.based_on_value)
-
-			for filter in filters_dict:
-				filters[scrub(filter)] = ["not in", filters_dict[filter]]
+			for field, restricted_values in restricted_items.items():
+				values_to_exclude = restricted_values - allowed_items[field]
+				if values_to_exclude:
+					filters[scrub(field)] = ["not in", list(values_to_exclude)]
 
 			if filters.get("customer"):
 				del filters["customer"]
diff --git a/erpnext/selling/doctype/party_specific_item/test_party_specific_item.py b/erpnext/selling/doctype/party_specific_item/test_party_specific_item.py
index eaa68232d27..008d465dc87 100644
--- a/erpnext/selling/doctype/party_specific_item/test_party_specific_item.py
+++ b/erpnext/selling/doctype/party_specific_item/test_party_specific_item.py
@@ -16,6 +16,36 @@ def create_party_specific_item(**args):
 	psi.insert()
 
 
+def create_supplier(supplier_name):
+	if frappe.db.exists("Supplier", supplier_name):
+		return frappe.get_doc("Supplier", supplier_name)
+
+	return frappe.get_doc(
+		{
+			"doctype": "Supplier",
+			"supplier_name": supplier_name,
+			"supplier_group": "Services",
+			"supplier_type": "Company",
+		}
+	).insert()
+
+
+def create_item(item_code):
+	if frappe.db.exists("Item", item_code):
+		return frappe.get_doc("Item", item_code)
+
+	return frappe.get_doc(
+		{
+			"doctype": "Item",
+			"item_code": item_code,
+			"item_name": item_code,
+			"description": item_code,
+			"item_group": "Products",
+			"is_purchase_item": 1,
+		}
+	).insert()
+
+
 class TestPartySpecificItem(ERPNextTestSuite):
 	def test_item_query_for_customer(self):
 		customer = "_Test Customer With Template"
@@ -49,6 +79,34 @@ class TestPartySpecificItem(ERPNextTestSuite):
 		)
 		self.assertTrue(item in flatten(items))
 
+	def test_item_query_for_supplier_with_item_restricted_to_multiple_suppliers(self):
+		item = f"Party Specific Item {frappe.generate_hash(length=8)}"
+		supplier1 = f"Party Specific Supplier {frappe.generate_hash(length=8)}"
+		supplier2 = f"Party Specific Supplier {frappe.generate_hash(length=8)}"
+
+		create_item(item)
+		create_supplier(supplier1)
+		create_supplier(supplier2)
+
+		for supplier in (supplier1, supplier2):
+			create_party_specific_item(
+				party_type="Supplier",
+				party=supplier,
+				restrict_based_on="Item",
+				based_on_value=item,
+			)
+
+		items = item_query(
+			doctype="Item",
+			txt=item,
+			searchfield="name",
+			start=0,
+			page_len=20,
+			filters={"supplier": supplier1, "is_purchase_item": 1},
+			as_dict=False,
+		)
+		self.assertIn(item, flatten(items))
+
 	def test_party_group(self):
 		customer = "_Test Customer With Template"
 		item = "_Test Item"