diff --git a/homeassistant/components/shelly/coordinator.py b/homeassistant/components/shelly/coordinator.py
index d3d7b86de11..e321f393ba3 100644
--- a/homeassistant/components/shelly/coordinator.py
+++ b/homeassistant/components/shelly/coordinator.py
@@ -154,24 +154,27 @@ class ShellyCoordinatorBase(DataUpdateCoordinator[None], Generic[_DeviceT]):
         )
         self.device_id = device_entry.id
 
-    async def _async_device_connect(self) -> None:
-        """Connect to a Shelly Block device."""
+    async def _async_device_connect_task(self) -> bool:
+        """Connect to a Shelly device task."""
         LOGGER.debug("Connecting to Shelly Device - %s", self.name)
         try:
             await self.device.initialize()
             update_device_fw_info(self.hass, self.device, self.entry)
         except DeviceConnectionError as err:
-            raise UpdateFailed(f"Device disconnected: {repr(err)}") from err
+            LOGGER.debug(
+                "Error connecting to Shelly device %s, error: %r", self.name, err
+            )
+            return False
         except InvalidAuthError:
             self.entry.async_start_reauth(self.hass)
-            return
+            return False
 
         if not self.device.firmware_supported:
             async_create_issue_unsupported_firmware(self.hass, self.entry)
-            return
+            return False
 
         if not self._pending_platforms:
-            return
+            return True
 
         LOGGER.debug("Device %s is online, resuming setup", self.entry.title)
         platforms = self._pending_platforms
@@ -193,6 +196,8 @@ class ShellyCoordinatorBase(DataUpdateCoordinator[None], Generic[_DeviceT]):
         # Resume platform setup
         await self.hass.config_entries.async_forward_entry_setups(self.entry, platforms)
 
+        return True
+
     async def _async_reload_entry(self) -> None:
         """Reload entry."""
         self._debounced_reload.async_cancel()
@@ -363,7 +368,7 @@ class ShellyBlockCoordinator(ShellyCoordinatorBase[BlockDevice]):
         if update_type is BlockUpdateType.ONLINE:
             self.entry.async_create_background_task(
                 self.hass,
-                self._async_device_connect(),
+                self._async_device_connect_task(),
                 "block device online",
                 eager_start=True,
             )
@@ -591,7 +596,8 @@ class ShellyRpcCoordinator(ShellyCoordinatorBase[RpcDevice]):
         if self.device.connected:
             return
 
-        await self._async_device_connect()
+        if not await self._async_device_connect_task():
+            raise UpdateFailed("Device reconnect error")
 
     async def _async_disconnected(self) -> None:
         """Handle device disconnected."""
@@ -661,7 +667,7 @@ class ShellyRpcCoordinator(ShellyCoordinatorBase[RpcDevice]):
         if update_type is RpcUpdateType.ONLINE:
             self.entry.async_create_background_task(
                 self.hass,
-                self._async_device_connect(),
+                self._async_device_connect_task(),
                 "rpc device online",
                 eager_start=True,
             )
diff --git a/tests/components/shelly/test_coordinator.py b/tests/components/shelly/test_coordinator.py
index 1e581e156c5..1dc45a98c44 100644
--- a/tests/components/shelly/test_coordinator.py
+++ b/tests/components/shelly/test_coordinator.py
@@ -24,10 +24,11 @@ from homeassistant.components.shelly.const import (
 )
 from homeassistant.config_entries import SOURCE_REAUTH, ConfigEntryState
 from homeassistant.const import ATTR_DEVICE_ID, STATE_ON, STATE_UNAVAILABLE
-from homeassistant.core import Event, HomeAssistant
+from homeassistant.core import Event, HomeAssistant, State
 from homeassistant.helpers import issue_registry as ir
 from homeassistant.helpers.device_registry import (
     CONNECTION_NETWORK_MAC,
+    DeviceRegistry,
     async_entries_for_config_entry,
     async_get as async_get_dev_reg,
     format_mac,
@@ -40,10 +41,11 @@ from . import (
     inject_rpc_device_event,
     mock_polling_rpc_update,
     mock_rest_update,
+    register_device,
     register_entity,
 )
 
-from tests.common import async_fire_time_changed
+from tests.common import async_fire_time_changed, mock_restore_cache
 
 RELAY_BLOCK_ID = 0
 LIGHT_BLOCK_ID = 2
@@ -806,3 +808,93 @@ async def test_rpc_runs_connected_events_when_initialized(
 
     # BLE script list is called during connected events
     assert call.script_list() in mock_rpc_device.mock_calls
+
+
+async def test_block_sleeping_device_connection_error(
+    hass: HomeAssistant,
+    freezer: FrozenDateTimeFactory,
+    mock_block_device: Mock,
+    device_reg: DeviceRegistry,
+    monkeypatch: pytest.MonkeyPatch,
+    caplog: pytest.LogCaptureFixture,
+) -> None:
+    """Test block sleeping device connection error during initialize."""
+    sleep_period = 1000
+    entry = await init_integration(hass, 1, sleep_period=sleep_period, skip_setup=True)
+    register_device(device_reg, entry)
+    entity_id = register_entity(
+        hass, BINARY_SENSOR_DOMAIN, "test_name_motion", "sensor_0-motion", entry
+    )
+    mock_restore_cache(hass, [State(entity_id, STATE_ON)])
+    monkeypatch.setattr(mock_block_device, "initialized", False)
+    await hass.config_entries.async_setup(entry.entry_id)
+    await hass.async_block_till_done()
+
+    assert get_entity_state(hass, entity_id) == STATE_ON
+
+    # Make device online event with connection error
+    monkeypatch.setattr(
+        mock_block_device,
+        "initialize",
+        AsyncMock(
+            side_effect=DeviceConnectionError,
+        ),
+    )
+    mock_block_device.mock_online()
+    await hass.async_block_till_done(wait_background_tasks=True)
+
+    assert "Error connecting to Shelly device" in caplog.text
+    assert get_entity_state(hass, entity_id) == STATE_ON
+
+    # Move time to generate sleep period update
+    freezer.tick(timedelta(seconds=sleep_period * SLEEP_PERIOD_MULTIPLIER))
+    async_fire_time_changed(hass)
+    await hass.async_block_till_done(wait_background_tasks=True)
+
+    assert "Sleeping device did not update" in caplog.text
+    assert get_entity_state(hass, entity_id) == STATE_UNAVAILABLE
+
+
+async def test_rpc_sleeping_device_connection_error(
+    hass: HomeAssistant,
+    freezer: FrozenDateTimeFactory,
+    mock_rpc_device: Mock,
+    device_reg: DeviceRegistry,
+    monkeypatch: pytest.MonkeyPatch,
+    caplog: pytest.LogCaptureFixture,
+) -> None:
+    """Test RPC sleeping device connection error during initialize."""
+    sleep_period = 1000
+    entry = await init_integration(hass, 2, sleep_period=1000, skip_setup=True)
+    register_device(device_reg, entry)
+    entity_id = register_entity(
+        hass, BINARY_SENSOR_DOMAIN, "test_name_cloud", "cloud-cloud", entry
+    )
+    mock_restore_cache(hass, [State(entity_id, STATE_ON)])
+    monkeypatch.setattr(mock_rpc_device, "initialized", False)
+    await hass.config_entries.async_setup(entry.entry_id)
+    await hass.async_block_till_done()
+
+    assert get_entity_state(hass, entity_id) == STATE_ON
+
+    # Make device online event with connection error
+    monkeypatch.setattr(
+        mock_rpc_device,
+        "initialize",
+        AsyncMock(
+            side_effect=DeviceConnectionError,
+        ),
+    )
+    mock_rpc_device.mock_online()
+    await hass.async_block_till_done(wait_background_tasks=True)
+
+    assert "Error connecting to Shelly device" in caplog.text
+    assert get_entity_state(hass, entity_id) == STATE_ON
+
+    # Move time to generate sleep period update
+    freezer.tick(timedelta(seconds=sleep_period * SLEEP_PERIOD_MULTIPLIER))
+    async_fire_time_changed(hass)
+    await hass.async_block_till_done(wait_background_tasks=True)
+
+    assert "Sleeping device did not update" in caplog.text
+    assert get_entity_state(hass, entity_id) == STATE_UNAVAILABLE