diff --git a/litellm/proxy/policy_engine/pipeline_executor.py b/litellm/proxy/policy_engine/pipeline_executor.py
index 45a113fcda2..9b0d1e60839 100644
--- a/litellm/proxy/policy_engine/pipeline_executor.py
+++ b/litellm/proxy/policy_engine/pipeline_executor.py
@@ -387,7 +387,8 @@ class PipelineExecutor:
         yet (a tool-call rewrite, a text rewrite on a translation without write-back, or one
         the translation or adapter refused with ``UndeliverableStreamRewrite``) is discarded:
         the buffered chunks go back to the originals and the step passes, so the client gets
-        the stream the merge base sent. The response an earlier step's translation stored under
+        the stream the merge base sent, and the guardrail stays out of the applied-guardrails
+        header since its output never reached the client. The response an earlier step's translation stored under
         ``request_data["response"]`` is dropped first, so this step's hook sees the stream as
         the steps before it left it."""
         scanner: Final = (
@@ -419,9 +420,10 @@ class PipelineExecutor:
                 )
         except UndeliverableStreamRewrite:
             _release_original_chunks(step.guardrail, streaming_chunks, originals)
-        else:
-            if observer.rewrote_tool_calls or (observer.rewrote_texts and not deliver_rewrites):
-                _release_original_chunks(step.guardrail, streaming_chunks, originals)
+            return
+        if observer.rewrote_tool_calls or (observer.rewrote_texts and not deliver_rewrites):
+            _release_original_chunks(step.guardrail, streaming_chunks, originals)
+            return
         if not callback.records_own_guardrail_information:
             add_guardrail_to_applied_guardrails_header(request_data=hook_input, guardrail_name=step.guardrail)
 
diff --git a/tests/test_litellm/proxy/policy_engine/test_pipeline_executor.py b/tests/test_litellm/proxy/policy_engine/test_pipeline_executor.py
index ae7754e5821..2af318c88cd 100644
--- a/tests/test_litellm/proxy/policy_engine/test_pipeline_executor.py
+++ b/tests/test_litellm/proxy/policy_engine/test_pipeline_executor.py
@@ -1146,6 +1146,7 @@ def _assert_passed_with_discard_warning(result, caplog):
     assert result.terminal_action == "allow"
     assert [step.outcome for step in result.step_results] == ["pass"]
     assert any("'masker'" in record.getMessage() and "discarded" in record.getMessage() for record in caplog.records)
+    assert "masker" not in ((result.modified_data or {}).get("metadata") or {}).get("applied_guardrails", [])
 
 
 @pytest.mark.asyncio