diff --git a/eth/utp/packets.nim b/eth/utp/packets.nim
index 16f3f42..c8bcd07 100644
--- a/eth/utp/packets.nim
+++ b/eth/utp/packets.nim
@@ -17,8 +17,10 @@ export results
 
 const 
   minimalHeaderSize = 20
+  minimalHeaderSizeWithSelectiveAck = 26
   protocolVersion = 1
   zeroMoment = Moment.init(0, Nanosecond)
+  acksArrayLength: uint8 = 4
 
 type 
   PacketType* = enum
@@ -46,8 +48,12 @@ type
     # sequence number the sender of the packet last received in the other direction
     ackNr*: uint16
 
+  SelectiveAckExtension = object
+    acks: array[acksArrayLength, byte]
+
   Packet* = object
     header*: PacketHeaderV1
+    eack*: Option[SelectiveAckExtension]
     payload*: seq[uint8]
 
   TimeStampInfo* = object
@@ -102,10 +108,22 @@ proc encodeHeaderStream(s: var OutputStream, h: PacketHeaderV1) =
     # This should not happen in case of in-memory streams
     raiseAssert e.msg
 
+proc encodeExtensionStream(s: var OutputStream, e: SelectiveAckExtension) =
+  try:
+    # writing 0 as there is not further extensions after selectiv ack
+    s.write(0'u8)
+    s.write(acksArrayLength)
+    s.write(e.acks)
+  except IOError as e:
+    # This should not happen in case of in-memory streams
+    raiseAssert e.msg
+
 proc encodePacket*(p: Packet): seq[byte] =
   var s = memoryOutput().s
   try:
     encodeHeaderStream(s, p.header)
+    if (p.eack.isSome()):
+      encodeExtensionStream(s, p.eack.unsafeGet())
     if (len(p.payload) > 0):
       s.write(p.payload)
     s.getOutput()
@@ -113,9 +131,9 @@ proc encodePacket*(p: Packet): seq[byte] =
     # This should not happen in case of in-memory streams
     raiseAssert e.msg
   
-# TODO for now we do not handle extensions
 proc decodePacket*(bytes: openArray[byte]): Result[Packet, string] =
-    if len(bytes) < minimalHeaderSize:
+    let receivedBytesLength = len(bytes)
+    if receivedBytesLength < minimalHeaderSize:
       return err("invalid header size")
 
     let version = bytes[0] and 0xf
@@ -126,11 +144,16 @@ proc decodePacket*(bytes: openArray[byte]): Result[Packet, string] =
     if not checkedEnumAssign(kind, (bytes[0] shr 4)):
       return err("Invalid message type")
       
+    let extensionByte = bytes[1]
+
+    if (not (extensionByte == 0 or extensionByte == 1)):
+       return err("Invalid extension type")
+
     let header =
       PacketHeaderV1(
         pType: kind,
         version: version,
-        extension: bytes[1],
+        extension: extensionByte,
         connection_id: fromBytesBE(uint16, bytes.toOpenArray(2, 3)),
         timestamp: fromBytesBE(uint32, bytes.toOpenArray(4, 7)),
         timestamp_diff: fromBytesBE(uint32, bytes.toOpenArray(8, 11)),
@@ -139,13 +162,43 @@ proc decodePacket*(bytes: openArray[byte]): Result[Packet, string] =
         ack_nr: fromBytesBE(uint16, bytes.toOpenArray(18, 19)),
       )
     
-    let payload =
-      if (len(bytes) == 20):
-        @[]
-      else:
-        bytes[20..^1]
+    if extensionByte == 0:
+      # packet without any extensions
+      let payload =
+        if (receivedBytesLength == minimalHeaderSize):
+          @[]
+        else:
+          bytes[20..^1]
 
-    ok(Packet(header: header, payload: payload))
+      return ok(Packet(header: header, eack: none[SelectiveAckExtension](), payload: payload))
+    else:
+      # packet with selective ack extension
+      if (receivedBytesLength < minimalHeaderSizeWithSelectiveAck):
+        return err("Packet too short for selective ack extension")
+      
+      let nextExtension = bytes[20]
+      let extLength = bytes[21]
+
+      # As selective ack is only supported extension the byte for nextExtension
+      # must be equal to 0.
+      # As for extLength, specificaiton says that it must be at least 4, and in multiples of 4
+      # but reference implementation always uses 4 bytes bit mask which makes sense
+      # as 4byte bit mask is able to ack 32 packets in the future which is more than enough
+      if (nextExtension != 0 or extLength != 4):
+        return err("Bad format of selective ack extension")
+      
+
+      let extension = SelectiveAckExtension(
+        acks: [bytes[22], bytes[23], bytes[24], bytes[25]]
+      )    
+
+      let payload =
+        if (receivedBytesLength == minimalHeaderSizeWithSelectiveAck):
+          @[]
+        else:
+          bytes[26..^1]
+
+      return ok(Packet(header: header, eack: some(extension), payload: payload))
 
 proc modifyTimeStampAndAckNr*(packetBytes: var seq[byte], newTimestamp: uint32, newAckNr: uint16) =
   ## Modifies timestamp and ack nr of already encoded packets. Those fields should be
@@ -163,7 +216,6 @@ proc synPacket*(seqNr: uint16, rcvConnectionId: uint16, bufferSize: uint32): Pac
   let h = PacketHeaderV1(
     pType: ST_SYN,
     version: protocolVersion,
-    # TODO for we do not handle extensions
     extension: 0'u8,
     connectionId: rcvConnectionId,
     timestamp: getMonoTimestamp().timestamp,
@@ -174,14 +226,27 @@ proc synPacket*(seqNr: uint16, rcvConnectionId: uint16, bufferSize: uint32): Pac
     ackNr: 0'u16
   )
 
-  Packet(header: h, payload: @[])
+  Packet(header: h, eack: none[SelectiveAckExtension](), payload: @[])
+
+proc ackPacket*(
+    seqNr: uint16,
+    sndConnectionId: uint16,
+    ackNr: uint16,
+    bufferSize: uint32,
+    timestampDiff: uint32,
+    acksBitmask: Option[array[4, byte]] = none[array[4, byte]]()
+  ): Packet = 
+
+  let (extensionByte, extensionData) =
+    if acksBitmask.isSome():
+      (1'u8, some(SelectiveAckExtension(acks: acksBitmask.unsafeGet())))
+    else:
+      (0'u8, none[SelectiveAckExtension]())
 
-proc ackPacket*(seqNr: uint16, sndConnectionId: uint16, ackNr: uint16, bufferSize: uint32, timestampDiff: uint32): Packet = 
   let h = PacketHeaderV1(
     pType: ST_STATE,
     version: protocolVersion,
-    # TODO Handle selective acks
-    extension: 0'u8,
+    extension: extensionByte,
     connectionId: sndConnectionId,
     timestamp: getMonoTimestamp().timestamp,
     timestampDiff: timestampDiff,
@@ -190,7 +255,8 @@ proc ackPacket*(seqNr: uint16, sndConnectionId: uint16, ackNr: uint16, bufferSiz
     ackNr: ackNr
   )
   
-  Packet(header: h, payload: @[])
+
+  Packet(header: h, eack: extensionData, payload: @[])
 
 proc dataPacket*(
   seqNr: uint16,
@@ -213,7 +279,7 @@ proc dataPacket*(
     ackNr: ackNr
   )
   
-  Packet(header: h, payload: payload)
+  Packet(header: h, eack: none[SelectiveAckExtension](), payload: payload)
 
 proc resetPacket*(seqNr: uint16, sndConnectionId: uint16, ackNr: uint16): Packet = 
   let h = PacketHeaderV1(
@@ -231,7 +297,7 @@ proc resetPacket*(seqNr: uint16, sndConnectionId: uint16, ackNr: uint16): Packet
     ackNr: ackNr
   )
   
-  Packet(header: h, payload: @[])
+  Packet(header: h, eack: none[SelectiveAckExtension](), payload: @[])
 
 proc finPacket*(
   seqNr: uint16,
@@ -253,4 +319,4 @@ proc finPacket*(
     ackNr: ackNr
   )
   
-  Packet(header: h, payload: @[])
+  Packet(header: h, eack: none[SelectiveAckExtension](), payload: @[])
diff --git a/tests/utp/test_packets.nim b/tests/utp/test_packets.nim
index 6527b35..6f4debc 100644
--- a/tests/utp/test_packets.nim
+++ b/tests/utp/test_packets.nim
@@ -7,6 +7,7 @@
 {.used.}
 
 import
+  std/options,
   unittest2,
   ../../eth/utp/packets,
   ../../eth/keys
@@ -21,8 +22,109 @@ suite "Utp packets encoding/decoding":
     let decoded = decodePacket(encoded)
 
     check:
+      len(encoded) == 20
       decoded.isOk()
-      synPacket == decoded.get()
+      
+    let synPacketDec = decoded.get()
+    
+    check:
+      synPacketDec == synPacket
+
+  test "Encode/decode fin packet":
+    let finPacket = finPacket(5, 10, 20, 30, 40)
+    let encoded = encodePacket(finPacket)
+    let decoded = decodePacket(encoded)
+
+    check:
+      len(encoded) == 20
+      decoded.isOk()
+      
+    let finPacketDec = decoded.get()
+    
+    check:
+      finPacketDec == finPacket
+
+  test "Encode/decode reset packet":
+    let resetPacket = resetPacket(5, 10, 20)
+    let encoded = encodePacket(resetPacket)
+    let decoded = decodePacket(encoded)
+
+    check:
+      len(encoded) == 20
+      decoded.isOk()
+      
+    let resetPacketDec = decoded.get()
+    
+    check:
+      resetPacketDec == resetPacket
+
+  test "Encode/decode ack packet without extensions":
+    let ackPacket = ackPacket(5, 10, 20, 30, 40)
+    let encoded = encodePacket(ackPacket)
+    let decoded = decodePacket(encoded)
+
+    check:
+      len(encoded) == 20
+      decoded.isOk()
+      
+    let ackPacketDec = decoded.get()
+    
+    check:
+      ackPacketDec == ackPacket
+
+  test "Encode/decode ack packet with extensions":
+    let bitMask: array[4, byte] = [1'u8, 2, 3, 4]
+    let ackPacket = ackPacket(5, 10, 20, 30, 40, some(bitMask))
+    let encoded = encodePacket(ackPacket)
+    let decoded = decodePacket(encoded)
+
+    check:
+      len(encoded) == 26
+      decoded.isOk()
+      
+    let ackPacketDec = decoded.get()
+    
+    check:
+      ackPacketDec == ackPacket
+      ackPacketDec.eack.isSome()
+
+  test "Fail to decode packet with malformed extensions":
+    let bitMask: array[4, byte] = [1'u8, 2, 3, 4]
+    let ackPacket = ackPacket(5, 10, 20, 30, 40, some(bitMask))
+
+    var encoded1 = encodePacket(ackPacket)
+    # change nextExtension to non zero
+    encoded1[20] = 1
+    let err1 = decodePacket(encoded1)
+    check:
+      err1.isErr()
+      err1.error() == "Bad format of selective ack extension"
+
+    var encoded2 = encodePacket(ackPacket)
+    # change len of extension to value different than 4
+    encoded2[21] = 7
+    let err2 = decodePacket(encoded2)
+    check:
+      err2.isErr()
+      err2.error() == "Bad format of selective ack extension"
+
+    var encoded3 = encodePacket(ackPacket)
+    # delete last byte, now packet is to short
+    encoded3.del(encoded3.high)
+    let err3 = decodePacket(encoded3)
+    
+    check:
+      err3.isErr()
+      err3.error() == "Packet too short for selective ack extension"
+
+
+    var encoded4 = encodePacket(ackPacket)
+    # change change extension field to something other than 0 or 1
+    encoded4[1] = 2
+    let err4 = decodePacket(encoded4)
+    check:
+      err4.isErr()
+      err4.error() == "Invalid extension type"
 
   test "Decode state packet":
     # Packet obtained by interaction with c reference implementation