diff --git a/api/backend_test.go b/api/backend_test.go
index 508eec2c9..8648c394d 100644
--- a/api/backend_test.go
+++ b/api/backend_test.go
@@ -1199,9 +1199,19 @@ func TestLoginAndMigrationsStillWorkWithExistingUsers(t *testing.T) {
 }
 
 func TestChangeDatabasePassword(t *testing.T) {
+	oldPassword := "password"
+	newPassword := "newPassword"
+
 	backend := NewGethStatusBackend()
 	backend.UpdateRootDataDir(t.TempDir())
 
+	// Setup keystore to test decryption of it
+	keyStoreDir := t.TempDir()
+	require.NoError(t, backend.accountManager.InitKeystore(keyStoreDir))
+
+	_, accountInfo, _, err := backend.accountManager.CreateAccount(oldPassword)
+	require.NoError(t, err)
+
 	account := multiaccounts.Account{
 		Name:          "TestAccount",
 		Timestamp:     1,
@@ -1209,11 +1219,8 @@ func TestChangeDatabasePassword(t *testing.T) {
 		KDFIterations: 1,
 	}
 
-	oldPassword := "password"
-	newPassword := "newPassword"
-
 	// Initialize accounts DB
-	err := backend.OpenAccounts()
+	err = backend.OpenAccounts()
 	require.NoError(t, err)
 	err = backend.SaveAccount(account)
 	require.NoError(t, err)
@@ -1234,4 +1241,11 @@ func TestChangeDatabasePassword(t *testing.T) {
 	walletDb, err := sqlite.OpenDB(backend.getWalletDBPath(account.KeyUID), newPassword, account.KDFIterations)
 	require.NoError(t, err)
 	walletDb.Close()
+
+	// Test that keystore can be decrypted with the new password
+	acc, key, err := backend.accountManager.AddressToDecryptedAccount(accountInfo.WalletAddress, newPassword)
+	require.NoError(t, err)
+	require.NotNil(t, acc)
+	require.NotNil(t, key)
+	require.Equal(t, acc.Address, key.Address)
 }
diff --git a/api/geth_backend.go b/api/geth_backend.go
index cab0aaf8f..7800b4b9b 100644
--- a/api/geth_backend.go
+++ b/api/geth_backend.go
@@ -858,9 +858,15 @@ func (b *GethStatusBackend) ChangeDatabasePassword(keyUID string, password strin
 	}
 
 	isCurrentAccount := b.getAppDBPath(keyUID) == internalDbPath
+
 	restartNode := func() {
 		if isCurrentAccount {
 			if err != nil {
+				// TODO https://github.com/status-im/status-go/issues/3906
+				// Fix restarting node, as it always fails but the error is ignored
+				// because UI calls Logout and Quit afterwards. It should not be UI-dependent
+				// and should be handled gracefully here if it makes sense to run dummy node after
+				// logout
 				_ = b.startNodeWithAccount(*account, password, nil)
 			} else {
 				_ = b.startNodeWithAccount(*account, newPassword, nil)
@@ -876,14 +882,23 @@ func (b *GethStatusBackend) ChangeDatabasePassword(keyUID string, password strin
 	}
 	noLogout := func() {}
 
-	err = b.changeWalletDBPassword(account, logout, password, newPassword)
+	// First change app DB password, because it also reencrypts the keystore,
+	// otherwise if we call changeWalletDbPassword first and logout, we will fail
+	// to reencrypt	the keystore
+	err = b.changeAppDBPassword(account, logout, password, newPassword)
 	if err != nil {
 		return err
 	}
 
-	// Already logged out
-	err = b.changeAppDBPassword(account, noLogout, password, newPassword)
+	// Already logged out but pass a param to decouple the logic for testing
+	err = b.changeWalletDBPassword(account, noLogout, password, newPassword)
 	if err != nil {
+		// Revert the password to original
+		err2 := b.changeAppDBPassword(account, noLogout, newPassword, password)
+		if err2 != nil {
+			log.Error("failed to revert app db password", "err", err2)
+		}
+
 		return err
 	}