diff --git a/src/libs/UnreadIndicatorUpdater/index.ts b/src/libs/UnreadIndicatorUpdater/index.ts
index 2a7019686308..b4f3cd34a8c4 100644
--- a/src/libs/UnreadIndicatorUpdater/index.ts
+++ b/src/libs/UnreadIndicatorUpdater/index.ts
@@ -26,8 +26,12 @@ export default function getUnreadReportsForUnreadIndicator(reports: OnyxCollecti
              * Chats with hidden preference remain invisible in the LHN and are not considered "unread."
              * They are excluded from the LHN rendering, but not filtered from the "option list."
              * This ensures they appear in Search, but not in the LHN or unread count.
+             *
+             * Furthermore, muted reports may or may not appear in the LHN depending on priority mode,
+             * but they should not be considered in the unread indicator count.
              */
-            report?.notificationPreference !== CONST.REPORT.NOTIFICATION_PREFERENCE.HIDDEN,
+            report?.notificationPreference !== CONST.REPORT.NOTIFICATION_PREFERENCE.HIDDEN &&
+            report?.notificationPreference !== CONST.REPORT.NOTIFICATION_PREFERENCE.MUTE,
     );
 }