diff --git a/include/bluetooth/hci.h b/include/bluetooth/hci.h
index 95160e0aa35..d324e0c68ac 100644
--- a/include/bluetooth/hci.h
+++ b/include/bluetooth/hci.h
@@ -2495,8 +2495,15 @@ struct bt_hci_evt_le_connection_iq_report {
 	struct bt_hci_le_iq_sample sample[0];
 } __packed;
 
+#define BT_HCI_CTE_REQ_STATUS_RSP_WITHOUT_CTE  0x0
+
 #define BT_HCI_EVT_LE_CTE_REQUEST_FAILED       0x17
 struct bt_hci_evt_le_cte_req_failed {
+	/* According to BT 5.3 Core Spec the status field may have following
+	 * values:
+	 * - BT_HCI_CTE_REQ_STATUS_RSP_WIHOUT_CTE when received LL_CTE_RSP_PDU without CTE.
+	 * - Other Controller error code for peer rejected request.
+	 */
 	uint8_t  status;
 	uint16_t conn_handle;
 } __packed;
diff --git a/subsys/bluetooth/controller/hci/hci.c b/subsys/bluetooth/controller/hci/hci.c
index 93fe92acaad..4cad95c2bc1 100644
--- a/subsys/bluetooth/controller/hci/hci.c
+++ b/subsys/bluetooth/controller/hci/hci.c
@@ -2991,6 +2991,21 @@ static void le_df_set_conn_cte_req_enable(struct net_buf *buf, struct net_buf **
 	rp->status = status;
 	rp->handle = handle_le16;
 }
+
+static void le_df_cte_req_failed(uint8_t error_code, uint16_t handle, struct net_buf *buf)
+{
+	struct bt_hci_evt_le_cte_req_failed *sep;
+
+	if (!(event_mask & BT_EVT_MASK_LE_META_EVENT) ||
+	    !(le_event_mask & BT_EVT_MASK_LE_CTE_REQUEST_FAILED)) {
+		return;
+	}
+
+	sep = meta_evt(buf, BT_HCI_EVT_LE_CTE_REQUEST_FAILED, sizeof(*sep));
+
+	sep->status = error_code;
+	sep->conn_handle = sys_cpu_to_le16(handle);
+}
 #endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
 
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_RSP)
@@ -7350,6 +7365,19 @@ static void le_unknown_rsp(struct pdu_data *pdu_data, uint16_t handle,
 	}
 }
 
+static void le_reject_ext_ind(struct pdu_data *pdu, uint16_t handle, struct net_buf *buf)
+{
+	switch (pdu->llctrl.reject_ext_ind.reject_opcode) {
+#if defined(CONFIG_BT_CTLR_DF_CONN_CTE_REQ)
+	case PDU_DATA_LLCTRL_TYPE_CTE_REQ:
+		le_df_cte_req_failed(pdu->llctrl.reject_ext_ind.error_code, handle, buf);
+		break;
+#endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
+	default:
+		BT_WARN("reject opcode: 0x%02x", pdu->llctrl.reject_ext_ind.reject_opcode);
+		break;
+	}
+}
 #if defined(CONFIG_BT_CTLR_CONN_PARAM_REQ)
 static void le_conn_param_req(struct pdu_data *pdu_data, uint16_t handle,
 			      struct net_buf *buf)
@@ -7466,10 +7494,20 @@ static void encode_data_ctrl(struct node_rx_pdu *node_rx,
 		break;
 #endif /* CONFIG_BT_CTLR_DATA_LENGTH */
 
+#if defined(CONFIG_BT_CTLR_DF_CONN_CTE_REQ)
+	case PDU_DATA_LLCTRL_TYPE_CTE_REQ:
+		le_df_cte_req_failed(BT_HCI_CTE_REQ_STATUS_RSP_WITHOUT_CTE, handle, buf);
+		break;
+#endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
+
 	case PDU_DATA_LLCTRL_TYPE_UNKNOWN_RSP:
 		le_unknown_rsp(pdu_data, handle, buf);
 		break;
 
+	case PDU_DATA_LLCTRL_TYPE_REJECT_EXT_IND:
+		le_reject_ext_ind(pdu_data, handle, buf);
+		break;
+
 	default:
 		LL_ASSERT(0);
 		return;
diff --git a/subsys/bluetooth/controller/ll_sw/ull_conn_types.h b/subsys/bluetooth/controller/ll_sw/ull_conn_types.h
index dc0425f5cdb..0da3d2a3c71 100644
--- a/subsys/bluetooth/controller/ll_sw/ull_conn_types.h
+++ b/subsys/bluetooth/controller/ll_sw/ull_conn_types.h
@@ -424,6 +424,7 @@ struct llcp_struct {
 		uint16_t req_interval;
 		uint16_t req_expire;
 	} cte_req;
+
 #endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_RSP)
 	struct llcp_df_rsp_cfg {
diff --git a/subsys/bluetooth/controller/ll_sw/ull_llcp_common.c b/subsys/bluetooth/controller/ll_sw/ull_llcp_common.c
index 045c0ee24d0..acfbf6367ea 100644
--- a/subsys/bluetooth/controller/ll_sw/ull_llcp_common.c
+++ b/subsys/bluetooth/controller/ll_sw/ull_llcp_common.c
@@ -210,9 +210,12 @@ static void lp_comm_ntf_length_change(struct ll_conn *conn, struct proc_ctx *ctx
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_REQ)
 static void lp_comm_ntf_cte_req(struct ll_conn *conn, struct proc_ctx *ctx, struct pdu_data *pdu)
 {
-	/* TODO (ppryga): Add handling of rejections in HCI: HCI_LE_CTE_Request_Failed. */
 	switch (ctx->response_opcode) {
 	case PDU_DATA_LLCTRL_TYPE_CTE_RSP:
+		/* Notify host that received LL_CTE_RSP does not have CTE */
+		if (!ctx->data.cte_remote_rsp.has_cte) {
+			llcp_ntf_encode_cte_req(pdu);
+		}
 		break;
 	case PDU_DATA_LLCTRL_TYPE_REJECT_EXT_IND:
 		llcp_ntf_encode_reject_ext_ind(ctx, pdu);
@@ -346,10 +349,12 @@ static void lp_comm_complete(struct ll_conn *conn, struct proc_ctx *ctx, uint8_t
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_REQ)
 	case PROC_CTE_REQ:
 		if (ctx->response_opcode == PDU_DATA_LLCTRL_TYPE_CTE_RSP) {
-			if (conn->llcp.cte_req.req_interval != 0U) {
+			if (ctx->data.cte_remote_rsp.has_cte &&
+			    conn->llcp.cte_req.req_interval != 0U) {
 				conn->llcp.cte_req.req_expire = conn->llcp.cte_req.req_interval;
 			} else {
 				conn->llcp.cte_req.is_enabled = 0U;
+				lp_comm_ntf(conn, ctx);
 			}
 			ctx->state = LP_COMMON_STATE_IDLE;
 		} else if (ctx->response_opcode == PDU_DATA_LLCTRL_TYPE_REJECT_EXT_IND &&
@@ -556,9 +561,11 @@ static void lp_comm_rx_decode(struct ll_conn *conn, struct proc_ctx *ctx, struct
 		llcp_pdu_decode_length_rsp(conn, pdu);
 		break;
 #endif /* CONFIG_BT_CTLR_DATA_LENGTH */
+#if defined(CONFIG_BT_CTLR_DF_CONN_CTE_REQ)
 	case PDU_DATA_LLCTRL_TYPE_CTE_RSP:
-		/* CTE Response PDU had no data */
+		llcp_pdu_decode_cte_rsp(ctx, pdu);
 		break;
+#endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
 	case PDU_DATA_LLCTRL_TYPE_REJECT_EXT_IND:
 		llcp_pdu_decode_reject_ext_ind(ctx, pdu);
 		break;
diff --git a/subsys/bluetooth/controller/ll_sw/ull_llcp_internal.h b/subsys/bluetooth/controller/ll_sw/ull_llcp_internal.h
index 36960946209..770e883c97e 100644
--- a/subsys/bluetooth/controller/ll_sw/ull_llcp_internal.h
+++ b/subsys/bluetooth/controller/ll_sw/ull_llcp_internal.h
@@ -220,6 +220,11 @@ struct proc_ctx {
 			uint8_t type:2;
 			uint8_t min_len:5;
 		} cte_req;
+
+		struct llcp_df_cte_remote_rsp {
+			/* Storage for information that received LL_CTE_RSP PDU includes CTE */
+			uint8_t has_cte;
+		} cte_remote_rsp;
 #endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
 
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_RSP)
@@ -591,7 +596,8 @@ void llcp_ntf_encode_length_change(struct ll_conn *conn,
  * Constant Tone Request Procedure Helper
  */
 void llcp_pdu_encode_cte_req(struct proc_ctx *ctx, struct pdu_data *pdu);
-void llcp_ntf_encode_cte_req(struct ll_conn *conn, struct pdu_data *pdu);
+void llcp_pdu_decode_cte_rsp(struct proc_ctx *ctx, const struct pdu_data *pdu);
+void llcp_ntf_encode_cte_req(struct pdu_data *pdu);
 #endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */
 
 #if defined(CONFIG_BT_CTLR_DF_CONN_CTE_RSP)
diff --git a/subsys/bluetooth/controller/ll_sw/ull_llcp_pdu.c b/subsys/bluetooth/controller/ll_sw/ull_llcp_pdu.c
index 224c4ae9b4d..54c56a713e5 100644
--- a/subsys/bluetooth/controller/ll_sw/ull_llcp_pdu.c
+++ b/subsys/bluetooth/controller/ll_sw/ull_llcp_pdu.c
@@ -727,14 +727,24 @@ void llcp_pdu_encode_cte_req(struct proc_ctx *ctx, struct pdu_data *pdu)
 	p->cte_type_req = ctx->data.cte_req.type;
 }
 
-void llcp_ntf_encode_cte_req(struct ll_conn *conn, struct pdu_data *pdu)
+void llcp_pdu_decode_cte_rsp(struct proc_ctx *ctx, const struct pdu_data *pdu)
+{
+	if (pdu->cp == 0U || pdu->cte_info.time == 0U) {
+		ctx->data.cte_remote_rsp.has_cte = false;
+	} else {
+		ctx->data.cte_remote_rsp.has_cte = true;
+	}
+}
+
+void llcp_ntf_encode_cte_req(struct pdu_data *pdu)
 {
 	pdu->ll_id = PDU_DATA_LLID_CTRL;
 	pdu->len =
 		offsetof(struct pdu_data_llctrl, cte_rsp) + sizeof(struct pdu_data_llctrl_cte_rsp);
 	pdu->llctrl.opcode = PDU_DATA_LLCTRL_TYPE_CTE_RSP;
 
-	/* TODO add handling of IQ samples forwarding */
+	/* Received LL_CTE_RSP PDU didn't have CTE */
+	pdu->cp = 0U;
 }
 #endif /* CONFIG_BT_CTLR_DF_CONN_CTE_REQ */