diff --git a/ably/realtime/connection.py b/ably/realtime/connection.py
index 3a154bae..d5c79f0d 100644
--- a/ably/realtime/connection.py
+++ b/ably/realtime/connection.py
@@ -14,6 +14,7 @@ class ConnectionState(Enum):
     CONNECTED = 'connected'
     CLOSING = 'closing'
     CLOSED = 'closed'
+    FAILED = 'failed'
 
 
 class RealtimeConnection:
@@ -68,6 +69,7 @@ async def ws_read_loop(self):
             if action == 9:  # ERROR
                 error = msg["error"]
                 if error['nonfatal'] is False:
+                    self.__state = ConnectionState.FAILED
                     if self.__connected_future:
                         self.__connected_future.set_exception(
                             AblyAuthException(error["message"], error["statusCode"], error["code"]))
diff --git a/test/ably/realtimeconnection_test.py b/test/ably/realtimeconnection_test.py
index 134c1f9d..929161a7 100644
--- a/test/ably/realtimeconnection_test.py
+++ b/test/ably/realtimeconnection_test.py
@@ -39,4 +39,5 @@ async def test_auth_invalid_key(self):
         ably = await RestSetup.get_ably_realtime(key=self.valid_key_format)
         with pytest.raises(AblyAuthException):
             await ably.connect()
+        assert ably.connection.state == ConnectionState.FAILED
         await ably.close()