diff --git a/changelog/pending/20221208--sdk-python--fix-a-deadlock-on-provider-side-error-with-automation-api.yaml b/changelog/pending/20221208--sdk-python--fix-a-deadlock-on-provider-side-error-with-automation-api.yaml
new file mode 100644
index 000000000000..94f14ac1dd86
--- /dev/null
+++ b/changelog/pending/20221208--sdk-python--fix-a-deadlock-on-provider-side-error-with-automation-api.yaml
@@ -0,0 +1,4 @@
+changes:
+- type: fix
+  scope: sdk/python
+  description: Fix a deadlock on provider-side error with automation api
diff --git a/sdk/python/lib/pulumi/automation/_server.py b/sdk/python/lib/pulumi/automation/_server.py
index 13c2f6ce8651..ccdd8cd56f6a 100644
--- a/sdk/python/lib/pulumi/automation/_server.py
+++ b/sdk/python/lib/pulumi/automation/_server.py
@@ -43,6 +43,15 @@ def on_pulumi_exit():
     def GetRequiredPlugins(self, request, context):
         return language_pb2.GetRequiredPluginsResponse()
 
+    def _exception_handler(self, loop, context):
+        # Exception are normally handler deeper in the stack. If this class of
+        # exception bubble up to here, something is wrong and we should stop
+        # the event loop
+        if "exception" in context and isinstance(context["exception"], grpc.RpcError):
+            loop.stop()
+        else:
+            loop.default_exception_handler(context)
+
     def Run(self, request, context):
         _suppress_unobserved_task_logging()
 
@@ -67,6 +76,7 @@ def Run(self, request, context):
         result = language_pb2.RunResponse()
         loop = asyncio.new_event_loop()
 
+        loop.set_exception_handler(self._exception_handler)
         try:
             loop.run_until_complete(run_in_stack(self.program))
         except RunError as exn: