diff --git a/protocol/x/clob/memclob/memclob.go b/protocol/x/clob/memclob/memclob.go
index 2b3b18c72b..6c9779571f 100644
--- a/protocol/x/clob/memclob/memclob.go
+++ b/protocol/x/clob/memclob/memclob.go
@@ -810,12 +810,9 @@ func (m *MemClobPriceTimePriority) matchOrder(
 
 	var matchingErr error
 
-	// If the order is post only and it's not the rewind step, then it cannot be filled.
+	// If the order is post only and crosses the book,
 	// Set the matching error so that the order is canceled.
-	// TODO(DEC-998): Determine if allowing post-only orders to match in rewind step is valid.
-	if len(newMakerFills) > 0 &&
-		!order.IsLiquidation() &&
-		order.MustGetOrder().TimeInForce == types.Order_TIME_IN_FORCE_POST_ONLY {
+	if !order.IsLiquidation() && takerOrderStatus.OrderStatus == types.PostOnlyWouldCrossMakerOrder {
 		matchingErr = types.ErrPostOnlyWouldCrossMakerOrder
 	}
 
@@ -1757,6 +1754,16 @@ func (m *MemClobPriceTimePriority) mustPerformTakerOrderMatching(
 			continue
 		}
 
+		// If a valid match has been generated but the taker order is a post only order,
+		// end the matching loop. Because of this, post-only orders can cause
+		// undercollateralized maker orders to be removed from the book up to the first valid match.
+		if takerOrderCrossesMakerOrder &&
+			!newTakerOrder.IsLiquidation() &&
+			newTakerOrder.MustGetOrder().TimeInForce == types.Order_TIME_IN_FORCE_POST_ONLY {
+			takerOrderStatus.OrderStatus = types.PostOnlyWouldCrossMakerOrder
+			break
+		}
+
 		// The orders have matched successfully, and the state has been updated.
 		// To mark the orders as matched, perform the following actions:
 		// 1. Deduct `matchedAmount` from the taker order's remaining quantums, and add the matched
diff --git a/protocol/x/clob/memclob/memclob_place_order_test.go b/protocol/x/clob/memclob/memclob_place_order_test.go
index 51c5a6a250..1b942201ab 100644
--- a/protocol/x/clob/memclob/memclob_place_order_test.go
+++ b/protocol/x/clob/memclob/memclob_place_order_test.go
@@ -2834,17 +2834,14 @@ func TestPlaceOrder_PostOnly(t *testing.T) {
 				},
 			},
 			expectedRemainingAsks: []OrderWithRemainingSize{},
+			// Second order is not collat check'd since the first order generates a valid
+			// match, so the matching loop ends.
 			expectedCollatCheck: []expectedMatch{
 				{
 					makerOrder:      &constants.Order_Bob_Num0_Id11_Clob1_Buy5_Price40_GTB32,
 					takerOrder:      &constants.Order_Alice_Num1_Id1_Clob1_Sell10_Price15_GTB20_PO,
 					matchedQuantums: 5,
 				},
-				{
-					makerOrder:      &constants.Order_Bob_Num0_Id4_Clob1_Buy20_Price35_GTB22,
-					takerOrder:      &constants.Order_Alice_Num1_Id1_Clob1_Sell10_Price15_GTB20_PO,
-					matchedQuantums: 5,
-				},
 			},
 			expectedExistingMatches:    []expectedMatch{},
 			expectedOperations:         []types.Operation{},
diff --git a/protocol/x/clob/types/orderbook.go b/protocol/x/clob/types/orderbook.go
index 9c640308c0..7650c2869b 100644
--- a/protocol/x/clob/types/orderbook.go
+++ b/protocol/x/clob/types/orderbook.go
@@ -136,6 +136,9 @@ const (
 	// with either multiple positions in isolated perpetuals or both an isolated and a cross perpetual
 	// position.
 	ViolatesIsolatedSubaccountConstraints
+	// PostOnlyWouldCrossMakerOrder indicates that matching the post only taker order would cross the
+	// orderbook, and was therefore canceled.
+	PostOnlyWouldCrossMakerOrder
 )
 
 // String returns a string representation of this `OrderStatus` enum.