diff --git a/CHANGELOG.md b/CHANGELOG.md
index 5ef910c64f..418ca3b3e3 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -22,6 +22,8 @@ We use *breaking :warning:* to mark changes that are not backward compatible (re
 
 ### Changed
 
+- [#7334](https://github.com/thanos-io/thanos/pull/7334) Compactor: do not vertically compact downsampled blocks. Such cases are now marked with `no-compact-mark.json`. Fixes panic `panic: unexpected seriesToChunkEncoder lack of iterations`.
+
 ### Removed
 
 ## [v0.35.0](https://github.com/thanos-io/thanos/tree/release-0.35) - 02.05.2024
diff --git a/cmd/thanos/compact.go b/cmd/thanos/compact.go
index f1437efc64..43fecdebc1 100644
--- a/cmd/thanos/compact.go
+++ b/cmd/thanos/compact.go
@@ -369,13 +369,20 @@ func runCompact(
 		conf.blockFilesConcurrency,
 		conf.compactBlocksFetchConcurrency,
 	)
+	var planner compact.Planner
+
 	tsdbPlanner := compact.NewPlanner(logger, levels, noCompactMarkerFilter)
-	planner := compact.WithLargeTotalIndexSizeFilter(
+	largeIndexFilterPlanner := compact.WithLargeTotalIndexSizeFilter(
 		tsdbPlanner,
 		insBkt,
 		int64(conf.maxBlockIndexSize),
 		compactMetrics.blocksMarked.WithLabelValues(metadata.NoCompactMarkFilename, metadata.IndexSizeExceedingNoCompactReason),
 	)
+	if enableVerticalCompaction {
+		planner = compact.WithVerticalCompactionDownsampleFilter(largeIndexFilterPlanner, insBkt, compactMetrics.blocksMarked.WithLabelValues(metadata.NoCompactMarkFilename, metadata.DownsampleVerticalCompactionNoCompactReason))
+	} else {
+		planner = largeIndexFilterPlanner
+	}
 	blocksCleaner := compact.NewBlocksCleaner(logger, insBkt, ignoreDeletionMarkFilter, deleteDelay, compactMetrics.blocksCleaned, compactMetrics.blockCleanupFailures)
 	compactor, err := compact.NewBucketCompactor(
 		logger,
diff --git a/pkg/block/metadata/markers.go b/pkg/block/metadata/markers.go
index 83273eb343..0a351a5fab 100644
--- a/pkg/block/metadata/markers.go
+++ b/pkg/block/metadata/markers.go
@@ -79,6 +79,8 @@ const (
 	IndexSizeExceedingNoCompactReason = "index-size-exceeding"
 	// OutOfOrderChunksNoCompactReason is a reason of to no compact block with index contains out of order chunk so that the compaction is not blocked.
 	OutOfOrderChunksNoCompactReason = "block-index-out-of-order-chunk"
+	// DownsampleVerticalCompactionNoCompactReason is a reason to not compact overlapping downsampled blocks as it does not make sense e.g. how to vertically compact the average.
+	DownsampleVerticalCompactionNoCompactReason = "downsample-vertical-compaction"
 )
 
 // NoCompactMark marker stores reason of block being excluded from compaction if needed.
diff --git a/pkg/compact/planner.go b/pkg/compact/planner.go
index 783191cacf..6d7d03eea2 100644
--- a/pkg/compact/planner.go
+++ b/pkg/compact/planner.go
@@ -234,6 +234,67 @@ type largeTotalIndexSizeFilter struct {
 
 var _ Planner = &largeTotalIndexSizeFilter{}
 
+type verticalCompactionDownsampleFilter struct {
+	bkt                objstore.Bucket
+	markedForNoCompact prometheus.Counter
+
+	*largeTotalIndexSizeFilter
+}
+
+var _ Planner = &verticalCompactionDownsampleFilter{}
+
+func WithVerticalCompactionDownsampleFilter(with *largeTotalIndexSizeFilter, bkt objstore.Bucket, markedForNoCompact prometheus.Counter) Planner {
+	return &verticalCompactionDownsampleFilter{
+		markedForNoCompact:        markedForNoCompact,
+		bkt:                       bkt,
+		largeTotalIndexSizeFilter: with,
+	}
+}
+
+func (v *verticalCompactionDownsampleFilter) Plan(ctx context.Context, metasByMinTime []*metadata.Meta, _ chan error, _ any) ([]*metadata.Meta, error) {
+	noCompactMarked := make(map[ulid.ULID]*metadata.NoCompactMark, 0)
+PlanLoop:
+	for {
+		plan, err := v.plan(ctx, noCompactMarked, metasByMinTime)
+		if err != nil {
+			return nil, err
+		}
+
+		if len(selectOverlappingMetas(plan)) == 0 {
+			return plan, nil
+		}
+
+		// If we have downsampled blocks, we need to mark them as no compact because it's impossible to do that with vertical compaction.
+		// Technically, the resolution is part of the group key but do not attach ourselves to that level of detail.
+		var marked = false
+		for _, m := range plan {
+			if m.Thanos.Downsample.Resolution == 0 {
+				continue
+			}
+			if err := block.MarkForNoCompact(
+				ctx,
+				v.logger,
+				v.bkt,
+				m.ULID,
+				metadata.DownsampleVerticalCompactionNoCompactReason,
+				"verticalCompactionDownsampleFilter: Downsampled block, see https://github.com/thanos-io/thanos/issues/6775",
+				v.markedForNoCompact,
+			); err != nil {
+				return nil, errors.Wrapf(err, "mark %v for no compaction", m.ULID.String())
+			}
+			noCompactMarked[m.ULID] = &metadata.NoCompactMark{ID: m.ULID, Version: metadata.NoCompactMarkVersion1}
+			marked = true
+		}
+
+		if marked {
+			continue PlanLoop
+		}
+
+		return plan, nil
+
+	}
+}
+
 // WithLargeTotalIndexSizeFilter wraps Planner with largeTotalIndexSizeFilter that checks the given plans and estimates total index size.
 // When found, it marks block for no compaction by placing no-compact-mark.json and updating cache.
 // NOTE: The estimation is very rough as it assumes extreme cases of indexes sharing no bytes, thus summing all source index sizes.
@@ -243,16 +304,19 @@ func WithLargeTotalIndexSizeFilter(with *tsdbBasedPlanner, bkt objstore.Bucket,
 	return &largeTotalIndexSizeFilter{tsdbBasedPlanner: with, bkt: bkt, totalMaxIndexSizeBytes: totalMaxIndexSizeBytes, markedForNoCompact: markedForNoCompact}
 }
 
-func (t *largeTotalIndexSizeFilter) Plan(ctx context.Context, metasByMinTime []*metadata.Meta, _ chan error, _ any) ([]*metadata.Meta, error) {
+func (t *largeTotalIndexSizeFilter) plan(ctx context.Context, extraNoCompactMarked map[ulid.ULID]*metadata.NoCompactMark, metasByMinTime []*metadata.Meta) ([]*metadata.Meta, error) {
 	noCompactMarked := t.noCompBlocksFunc()
-	copiedNoCompactMarked := make(map[ulid.ULID]*metadata.NoCompactMark, len(noCompactMarked))
+	copiedNoCompactMarked := make(map[ulid.ULID]*metadata.NoCompactMark, len(noCompactMarked)+len(extraNoCompactMarked))
 	for k, v := range noCompactMarked {
 		copiedNoCompactMarked[k] = v
 	}
+	for k, v := range extraNoCompactMarked {
+		copiedNoCompactMarked[k] = v
+	}
 
 PlanLoop:
 	for {
-		plan, err := t.plan(copiedNoCompactMarked, metasByMinTime)
+		plan, err := t.tsdbBasedPlanner.plan(copiedNoCompactMarked, metasByMinTime)
 		if err != nil {
 			return nil, err
 		}
@@ -303,3 +367,7 @@ PlanLoop:
 		return plan, nil
 	}
 }
+
+func (t *largeTotalIndexSizeFilter) Plan(ctx context.Context, metasByMinTime []*metadata.Meta, _ chan error, _ any) ([]*metadata.Meta, error) {
+	return t.plan(ctx, nil, metasByMinTime)
+}
diff --git a/test/e2e/compact_test.go b/test/e2e/compact_test.go
index 94a3f344fe..eb0ceb0054 100644
--- a/test/e2e/compact_test.go
+++ b/test/e2e/compact_test.go
@@ -998,6 +998,6 @@ func TestCompactorIssue6775(t *testing.T) {
 		Type:   client.S3,
 		Config: e2ethanos.NewS3Config(bucket, m.InternalEndpoint("http"), m.Dir()),
 	}, nil, "--compact.enable-vertical-compaction")
-	testutil.NotOk(t, e2e.StartAndWaitReady(c))
-	testutil.NotOk(t, c.WaitSumMetricsWithOptions(e2emon.Greater(0), []string{"thanos_compact_iterations_total"}, e2emon.WaitMissingMetrics()))
+	testutil.Ok(t, e2e.StartAndWaitReady(c))
+	testutil.Ok(t, c.WaitSumMetricsWithOptions(e2emon.Greater(0), []string{"thanos_compact_iterations_total"}, e2emon.WaitMissingMetrics()))
 }