diff --git a/drivers/net/ethernet/intel/ice/ice_eswitch.c b/drivers/net/ethernet/intel/ice/ice_eswitch.c
index bfd003135fc8e..4fe235da1182f 100644
--- a/drivers/net/ethernet/intel/ice/ice_eswitch.c
+++ b/drivers/net/ethernet/intel/ice/ice_eswitch.c
@@ -113,8 +113,13 @@ static int ice_eswitch_setup_env(struct ice_pf *pf)
 	if (ice_vsi_update_security(ctrl_vsi, ice_vsi_ctx_set_allow_override))
 		goto err_override_control;
 
+	if (ice_vsi_update_local_lb(uplink_vsi, true))
+		goto err_override_local_lb;
+
 	return 0;
 
+err_override_local_lb:
+	ice_vsi_update_security(ctrl_vsi, ice_vsi_ctx_clear_allow_override);
 err_override_control:
 	ice_vsi_update_security(uplink_vsi, ice_vsi_ctx_clear_allow_override);
 err_override_uplink:
@@ -391,6 +396,7 @@ static void ice_eswitch_release_env(struct ice_pf *pf)
 
 	vlan_ops = ice_get_compat_vsi_vlan_ops(uplink_vsi);
 
+	ice_vsi_update_local_lb(uplink_vsi, false);
 	ice_vsi_update_security(ctrl_vsi, ice_vsi_ctx_clear_allow_override);
 	ice_vsi_update_security(uplink_vsi, ice_vsi_ctx_clear_allow_override);
 	vlan_ops->ena_rx_filtering(uplink_vsi);
diff --git a/drivers/net/ethernet/intel/ice/ice_lib.c b/drivers/net/ethernet/intel/ice/ice_lib.c
index 0054d7e64ec31..a43c23c80565b 100644
--- a/drivers/net/ethernet/intel/ice/ice_lib.c
+++ b/drivers/net/ethernet/intel/ice/ice_lib.c
@@ -4076,3 +4076,28 @@ void ice_vsi_ctx_clear_allow_override(struct ice_vsi_ctx *ctx)
 {
 	ctx->info.sec_flags &= ~ICE_AQ_VSI_SEC_FLAG_ALLOW_DEST_OVRD;
 }
+
+/**
+ * ice_vsi_update_local_lb - update sw block in VSI with local loopback bit
+ * @vsi: pointer to VSI structure
+ * @set: set or unset the bit
+ */
+int
+ice_vsi_update_local_lb(struct ice_vsi *vsi, bool set)
+{
+	struct ice_vsi_ctx ctx = {
+		.info	= vsi->info,
+	};
+
+	ctx.info.valid_sections = cpu_to_le16(ICE_AQ_VSI_PROP_SW_VALID);
+	if (set)
+		ctx.info.sw_flags |= ICE_AQ_VSI_SW_FLAG_LOCAL_LB;
+	else
+		ctx.info.sw_flags &= ~ICE_AQ_VSI_SW_FLAG_LOCAL_LB;
+
+	if (ice_update_vsi(&vsi->back->hw, vsi->idx, &ctx, NULL))
+		return -ENODEV;
+
+	vsi->info = ctx.info;
+	return 0;
+}
diff --git a/drivers/net/ethernet/intel/ice/ice_lib.h b/drivers/net/ethernet/intel/ice/ice_lib.h
index e985766e6bb5f..1628385a96726 100644
--- a/drivers/net/ethernet/intel/ice/ice_lib.h
+++ b/drivers/net/ethernet/intel/ice/ice_lib.h
@@ -157,6 +157,7 @@ void ice_vsi_ctx_clear_antispoof(struct ice_vsi_ctx *ctx);
 void ice_vsi_ctx_set_allow_override(struct ice_vsi_ctx *ctx);
 
 void ice_vsi_ctx_clear_allow_override(struct ice_vsi_ctx *ctx);
+int ice_vsi_update_local_lb(struct ice_vsi *vsi, bool set);
 int ice_vsi_add_vlan_zero(struct ice_vsi *vsi);
 int ice_vsi_del_vlan_zero(struct ice_vsi *vsi);
 bool ice_vsi_has_non_zero_vlans(struct ice_vsi *vsi);