diff --git a/lib/grade/grade_category.php b/lib/grade/grade_category.php
index 10656f95c82..5cd052d7436 100644
--- a/lib/grade/grade_category.php
+++ b/lib/grade/grade_category.php
@@ -913,7 +913,10 @@ class grade_category extends grade_object {
                 // We're looking for other grade items with the same grade value but a higher grademax
                 $i = 1;
                 while ($originalindex+$i < count($grade_keys)) {
+
                     $possibleitemid = $grade_keys[$originalindex+$i];
+                    $i++;
+
                     if ($grade_values[$founditemid] != $grade_values[$possibleitemid]) {
                         // The next grade item has a different grade value. Stop looking.
                         break;
@@ -930,8 +933,6 @@ class grade_category extends grade_object {
                         $founditemid = $possibleitemid;
                         // Continue searching to see if there is an even higher grademax
                     }
-
-                    $i++;
                 }
 
                 // Now drop whatever grade item we have found
diff --git a/lib/grade/tests/grade_category_test.php b/lib/grade/tests/grade_category_test.php
index 727e69867f0..e4281a0460a 100644
--- a/lib/grade/tests/grade_category_test.php
+++ b/lib/grade/tests/grade_category_test.php
@@ -516,6 +516,21 @@ class grade_category_testcase extends grade_base_testcase {
         $this->assertEquals(count($grades), 1);
         $this->assertEquals($grades[$this->grade_items[2]->id], 6);
 
+        // MDL-35667 - There was an infinite loop if several items had the same grade and at least one was extra credit
+        $category = new grade_category();
+        $category->droplow     = 1;
+        $category->aggregation = GRADE_AGGREGATE_WEIGHTED_MEAN2; // simple weighted mean
+        $items[$this->grade_items[1]->id]->aggregationcoef = 1; // Mark grade item 1 as "extra credit"
+        $grades = array($this->grade_items[0]->id=>1, // 1 out of 110. Should be excluded from aggregation.
+                        $this->grade_items[1]->id=>1, // 1 out of 100. Extra credit. Should be retained.
+                        $this->grade_items[2]->id=>1, // 1 out of 6. Should be retained.
+                        $this->grade_items[4]->id=>1);// 1 out of 100. Should be retained.
+        $category->apply_limit_rules($grades, $items);
+        $this->assertEquals(count($grades), 3);
+        $this->assertEquals($grades[$this->grade_items[1]->id], 1);
+        $this->assertEquals($grades[$this->grade_items[2]->id], 1);
+        $this->assertEquals($grades[$this->grade_items[4]->id], 1);
+
     }
 
     /**