diff --git a/subsys/pm/policy/policy_default.c b/subsys/pm/policy/policy_default.c
index eaf317d24cf..497cf4219e6 100644
--- a/subsys/pm/policy/policy_default.c
+++ b/subsys/pm/policy/policy_default.c
@@ -9,13 +9,12 @@
 #include <zephyr/sys_clock.h>
 #include <zephyr/pm/device.h>
 
-extern int32_t max_latency_cyc;
-
 const struct pm_state_info *pm_policy_next_state(uint8_t cpu, int32_t ticks)
 {
 	int64_t cyc = -1;
 	uint8_t num_cpu_states;
 	const struct pm_state_info *cpu_states;
+	const struct pm_state_info *out_state = NULL;
 
 #ifdef CONFIG_PM_NEED_ALL_DEVICES_IDLE
 	if (pm_device_is_any_busy()) {
@@ -29,29 +28,25 @@ const struct pm_state_info *pm_policy_next_state(uint8_t cpu, int32_t ticks)
 
 	num_cpu_states = pm_state_cpu_get_all(cpu, &cpu_states);
 
-	for (int16_t i = (int16_t)num_cpu_states - 1; i >= 0; i--) {
+	for (uint32_t i = 0; i < num_cpu_states; i++) {
 		const struct pm_state_info *state = &cpu_states[i];
-		uint32_t min_residency_cyc, exit_latency_cyc;
+		uint32_t min_residency_ticks;
 
-		/* check if there is a lock on state + substate */
-		if (pm_policy_state_lock_is_active(state->state, state->substate_id)) {
+		min_residency_ticks =
+			k_us_to_ticks_ceil32(state->min_residency_us + state->exit_latency_us);
+
+		if (ticks < min_residency_ticks) {
+			/* If current state has higher residency then use the previous state; */
+			break;
+		}
+
+		/* check if state is available. */
+		if (!pm_policy_state_is_available(state->state, state->substate_id)) {
 			continue;
 		}
 
-		min_residency_cyc = k_us_to_cyc_ceil32(state->min_residency_us);
-		exit_latency_cyc = k_us_to_cyc_ceil32(state->exit_latency_us);
-
-		/* skip state if it brings too much latency */
-		if ((max_latency_cyc >= 0) &&
-		    (exit_latency_cyc >= max_latency_cyc)) {
-			continue;
-		}
-
-		if ((cyc < 0) ||
-		    (cyc >= (min_residency_cyc + exit_latency_cyc))) {
-			return state;
-		}
+		out_state = state;
 	}
 
-	return NULL;
+	return out_state;
 }