diff --git a/hadoop-hdds/server-scm/src/main/java/org/apache/hadoop/hdds/scm/server/SCMChillModeManager.java b/hadoop-hdds/server-scm/src/main/java/org/apache/hadoop/hdds/scm/server/SCMChillModeManager.java
index c11a60f6c5a..44744f0399b 100644
--- a/hadoop-hdds/server-scm/src/main/java/org/apache/hadoop/hdds/scm/server/SCMChillModeManager.java
+++ b/hadoop-hdds/server-scm/src/main/java/org/apache/hadoop/hdds/scm/server/SCMChillModeManager.java
@@ -29,6 +29,7 @@ import java.util.concurrent.atomic.AtomicBoolean;
 import java.util.concurrent.atomic.AtomicLong;
 import org.apache.hadoop.conf.Configuration;
 import org.apache.hadoop.hdds.HddsConfigKeys;
+import org.apache.hadoop.hdds.protocol.proto.HddsProtos;
 import org.apache.hadoop.hdds.protocol.proto.HddsProtos.ScmOps;
 import org.apache.hadoop.hdds.scm.container.common.helpers.ContainerInfo;
 import org.apache.hadoop.hdds.scm.events.SCMEvents;
@@ -162,7 +163,7 @@ public class SCMChillModeManager implements
 
     // Required cutoff % for containers with at least 1 reported replica.
     private double chillModeCutoff;
-    // Containers read from scm db.
+    // Containers read from scm db (excluding containers in ALLOCATED state).
     private Map<Long, ContainerInfo> containerMap;
     private double maxContainer;
 
@@ -174,11 +175,16 @@ public class SCMChillModeManager implements
       containerMap = new ConcurrentHashMap<>();
       if(containers != null) {
         containers.forEach(c -> {
-          if (c != null) {
+          // Containers in ALLOCATED state should not be included while
+          // calculating the total number of containers here. They are not
+          // reported by DNs and hence should not affect the chill mode exit
+          // rule.
+          if (c != null && c.getState() != null &&
+              !c.getState().equals(HddsProtos.LifeCycleState.ALLOCATED)) {
             containerMap.put(c.getContainerID(), c);
           }
         });
-        maxContainer = containers.size();
+        maxContainer = containerMap.size();
       }
     }
 
diff --git a/hadoop-hdds/server-scm/src/test/java/org/apache/hadoop/hdds/scm/server/TestSCMChillModeManager.java b/hadoop-hdds/server-scm/src/test/java/org/apache/hadoop/hdds/scm/server/TestSCMChillModeManager.java
index 53d76e64bb7..41708a400ff 100644
--- a/hadoop-hdds/server-scm/src/test/java/org/apache/hadoop/hdds/scm/server/TestSCMChillModeManager.java
+++ b/hadoop-hdds/server-scm/src/test/java/org/apache/hadoop/hdds/scm/server/TestSCMChillModeManager.java
@@ -22,6 +22,7 @@ import java.util.List;
 import org.apache.hadoop.conf.Configuration;
 import org.apache.hadoop.hdds.HddsConfigKeys;
 import org.apache.hadoop.hdds.conf.OzoneConfiguration;
+import org.apache.hadoop.hdds.protocol.proto.HddsProtos;
 import org.apache.hadoop.hdds.scm.HddsTestUtils;
 import org.apache.hadoop.hdds.scm.container.common.helpers.ContainerInfo;
 import org.apache.hadoop.hdds.scm.events.SCMEvents;
@@ -70,6 +71,11 @@ public class TestSCMChillModeManager {
   private void testChillMode(int numContainers) throws Exception {
     containers = new ArrayList<>();
     containers.addAll(HddsTestUtils.getContainerInfo(numContainers));
+    // Assign open state to containers to be included in the chill mode
+    // container list
+    for (ContainerInfo container : containers) {
+      container.setState(HddsProtos.LifeCycleState.OPEN);
+    }
     scmChillModeManager = new SCMChillModeManager(config, containers, queue);
     queue.addHandler(SCMEvents.NODE_REGISTRATION_CONT_REPORT,
         scmChillModeManager);
@@ -85,6 +91,11 @@ public class TestSCMChillModeManager {
   public void testChillModeExitRule() throws Exception {
     containers = new ArrayList<>();
     containers.addAll(HddsTestUtils.getContainerInfo(25 * 4));
+    // Assign open state to containers to be included in the chill mode
+    // container list
+    for (ContainerInfo container : containers) {
+      container.setState(HddsProtos.LifeCycleState.OPEN);
+    }
     scmChillModeManager = new SCMChillModeManager(config, containers, queue);
     queue.addHandler(SCMEvents.NODE_REGISTRATION_CONT_REPORT,
         scmChillModeManager);
@@ -119,6 +130,46 @@ public class TestSCMChillModeManager {
     testChillModeDataNodes(5);
   }
 
+  /**
+   * Check that containers in Allocated state are not considered while
+   * computing percentage of containers with at least 1 reported replica in
+   * chill mode exit rule.
+   */
+  @Test
+  public void testContainerChillModeRule() throws Exception {
+    containers = new ArrayList<>();
+    // Add 100 containers to the list of containers in SCM
+    containers.addAll(HddsTestUtils.getContainerInfo(25 * 4));
+    // Assign OPEN state to first 25 containers and ALLLOCATED state to rest
+    // of the containers
+    for (ContainerInfo container : containers.subList(0, 25)) {
+      container.setState(HddsProtos.LifeCycleState.OPEN);
+    }
+    for (ContainerInfo container : containers.subList(25, 100)) {
+      container.setState(HddsProtos.LifeCycleState.ALLOCATED);
+    }
+
+    scmChillModeManager = new SCMChillModeManager(config, containers, queue);
+    queue.addHandler(SCMEvents.NODE_REGISTRATION_CONT_REPORT,
+        scmChillModeManager);
+    assertTrue(scmChillModeManager.getInChillMode());
+
+    // When 10 OPEN containers are reported by DNs, the computed container
+    // threshold should be 10/25 as there are only 25 open containers.
+    // Containers in ALLOCATED state should not contribute towards list of
+    // containers while calculating container threshold in SCMChillNodeManager
+    testContainerThreshold(containers.subList(0, 10), 0.4);
+    assertTrue(scmChillModeManager.getInChillMode());
+
+    // When remaining 15 OPEN containers are reported by DNs, the container
+    // threshold should be (10+15)/25.
+    testContainerThreshold(containers.subList(10, 25), 1.0);
+
+    GenericTestUtils.waitFor(() -> {
+      return !scmChillModeManager.getInChillMode();
+    }, 100, 1000 * 5);
+  }
+
   private void testChillModeDataNodes(int numOfDns) throws Exception {
     OzoneConfiguration conf = new OzoneConfiguration(config);
     conf.setInt(HddsConfigKeys.HDDS_SCM_CHILLMODE_MIN_DATANODE, numOfDns);
@@ -146,7 +197,7 @@ public class TestSCMChillModeManager {
     queue.fireEvent(SCMEvents.NODE_REGISTRATION_CONT_REPORT,
         HddsTestUtils.createNodeRegistrationContainerReport(containers));
     GenericTestUtils.waitFor(() -> {
-      return scmChillModeManager.getInChillMode();
+      return !scmChillModeManager.getInChillMode();
     }, 10, 1000 * 10);
   }