diff --git a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller.go b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller.go
index bb578dca6427..9c3b8a5314c8 100644
--- a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller.go
+++ b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller.go
@@ -20,6 +20,7 @@ import (
 	"context"
 	"fmt"
 	"os"
+	"strings"
 
 	corev1 "k8s.io/api/core/v1"
 	metav1 "k8s.io/apimachinery/pkg/apis/meta/v1"
@@ -46,6 +47,7 @@ const (
 	resourceNameMachine           = "machines"
 	resourceNameMachineSet        = "machinesets"
 	resourceNameMachineDeployment = "machinedeployments"
+	failedMachinePrefix           = "failed-machine-"
 )
 
 // machineController watches for Nodes, Machines, MachineSets and
@@ -221,6 +223,16 @@ func (c *machineController) findMachineByProviderID(providerID normalizedProvide
 		}
 	}
 
+	if isFailedMachineProviderID(providerID) {
+		machine, err := c.findMachine(machineKeyFromFailedProviderID(providerID))
+		if err != nil {
+			return nil, err
+		}
+		if machine != nil {
+			return machine.DeepCopy(), nil
+		}
+	}
+
 	// If the machine object has no providerID--maybe actuator
 	// does not set this value (e.g., OpenStack)--then first
 	// lookup the node using ProviderID. If that is successful
@@ -236,6 +248,15 @@ func (c *machineController) findMachineByProviderID(providerID normalizedProvide
 	return c.findMachine(node.Annotations[machineAnnotationKey])
 }
 
+func isFailedMachineProviderID(providerID normalizedProviderID) bool {
+	return strings.HasPrefix(string(providerID), failedMachinePrefix)
+}
+
+func machineKeyFromFailedProviderID(providerID normalizedProviderID) string {
+	namespaceName := strings.TrimPrefix(string(providerID), failedMachinePrefix)
+	return strings.Replace(namespaceName, "_", "/", 1)
+}
+
 // findNodeByNodeName finds the Node object keyed by name.. Returns
 // nil if it cannot be found. A DeepCopy() of the object is returned
 // on success.
@@ -422,6 +443,15 @@ func (c *machineController) machineSetProviderIDs(machineSet *MachineSet) ([]str
 			continue
 		}
 
+		if machine.Status.Phase == "Failed" {
+			klog.V(4).Infof("Status.Phase of machine %q is failed", machine.Name)
+			// Provide a fake ID that can be recognised later and convered into a machine key.
+			// Use an underscore as a separator between namespace and name as it is not a
+			// valid character within a namespace name.
+			providerIDs = append(providerIDs, fmt.Sprintf("%s%s_%s", failedMachinePrefix, machine.Namespace, machine.Name))
+			continue
+		}
+
 		if machine.Status.NodeRef == nil {
 			klog.V(4).Infof("Status.NodeRef of machine %q is currently nil", machine.Name)
 			continue
diff --git a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller_test.go b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller_test.go
index 3d1c06a7f5e1..776cc8e4122c 100644
--- a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller_test.go
+++ b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_controller_test.go
@@ -472,7 +472,17 @@ func TestControllerFindMachineByProviderID(t *testing.T) {
 		t.Fatalf("expected machines to be equal - expected %+v, got %+v", testConfig.machines[0], machine)
 	}
 
-	// Test #2: Verify machine is not found if it has a
+	// Test #2: Verify machine returned by fake provider ID is correct machine
+	fakeProviderID := fmt.Sprintf("%s$s/%s", testConfig.machines[0].Namespace, testConfig.machines[0].Name)
+	machine, err = controller.findMachineByProviderID(normalizedProviderID(fakeProviderID))
+	if err != nil {
+		t.Fatalf("unexpected error: %v", err)
+	}
+	if machine != nil {
+		t.Fatal("expected find to fail")
+	}
+
+	// Test #3: Verify machine is not found if it has a
 	// non-existent or different provider ID.
 	machine = testConfig.machines[0].DeepCopy()
 	machine.Spec.ProviderID = pointer.StringPtr("does-not-match")
diff --git a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_converters.go b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_converters.go
index 9d883625594b..dba984337c13 100644
--- a/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_converters.go
+++ b/cluster-autoscaler/cloudprovider/clusterapi/clusterapi_converters.go
@@ -115,6 +115,10 @@ func newMachineFromUnstructured(u *unstructured.Unstructured) *Machine {
 		machine.Status.NodeRef = &nodeRef
 	}
 
+	if phase, _, _ := unstructured.NestedString(u.Object, "status", "phase"); phase != "" {
+		machine.Status.Phase = phase
+	}
+
 	return &machine
 }
 
@@ -184,5 +188,7 @@ func newUnstructuredFromMachine(m *Machine) *unstructured.Unstructured {
 		}
 	}
 
+	unstructured.SetNestedField(u.Object, m.Status.Phase, "status", "phase")
+
 	return &u
 }
diff --git a/cluster-autoscaler/cloudprovider/clusterapi/machine_types.go b/cluster-autoscaler/cloudprovider/clusterapi/machine_types.go
index 4f4e968ac20f..0b3b43e8fd97 100644
--- a/cluster-autoscaler/cloudprovider/clusterapi/machine_types.go
+++ b/cluster-autoscaler/cloudprovider/clusterapi/machine_types.go
@@ -63,6 +63,11 @@ type MachineStatus struct {
 	// NodeRef will point to the corresponding Node if it exists.
 	// +optional
 	NodeRef *corev1.ObjectReference `json:"nodeRef,omitempty"`
+
+	// Phase represents the current phase of machine actuation.
+	// E.g. Pending, Running, Terminating, Failed etc.
+	// +optional
+	Phase string `json:"phase,omitempty"`
 }
 
 // MachineList contains a list of Machine