diff --git a/streams/src/main/java/org/apache/kafka/streams/processor/internals/TaskManager.java b/streams/src/main/java/org/apache/kafka/streams/processor/internals/TaskManager.java
index 67d009b037f78..232487e2ebc98 100644
--- a/streams/src/main/java/org/apache/kafka/streams/processor/internals/TaskManager.java
+++ b/streams/src/main/java/org/apache/kafka/streams/processor/internals/TaskManager.java
@@ -1082,6 +1082,7 @@ private void addTaskToStateUpdater(final Task task) {
         try {
             if (canTryInitializeTask(task.id(), nowMs)) {
                 task.initializeIfNeeded();
+                task.clearTaskTimeout();
                 taskIdToBackoffRecord.remove(task.id());
                 stateUpdater.add(task);
             } else {
@@ -1095,6 +1096,14 @@ private void addTaskToStateUpdater(final Task task) {
                      lockException.getMessage());
             tasks.addPendingTasksToInit(Collections.singleton(task));
             updateOrCreateBackoffRecord(task.id(), nowMs);
+        } catch (final TimeoutException timeoutException) {
+            // A timeout can occur either during producer initialization OR while fetching committed offsets.
+            // Retry in the next iteration.
+            task.maybeInitTaskTimeoutOrThrow(nowMs, timeoutException);
+            tasks.addPendingTasksToInit(Collections.singleton(task));
+            updateOrCreateBackoffRecord(task.id(), nowMs);
+            log.info("Encountered timeout exception. Reattempting initialization in the next iteration. Error message was: {}",
+                     timeoutException.getMessage());
         }
     }
 
diff --git a/streams/src/test/java/org/apache/kafka/streams/processor/internals/TaskManagerTest.java b/streams/src/test/java/org/apache/kafka/streams/processor/internals/TaskManagerTest.java
index 0156d101ed8db..7e696b766b0d8 100644
--- a/streams/src/test/java/org/apache/kafka/streams/processor/internals/TaskManagerTest.java
+++ b/streams/src/test/java/org/apache/kafka/streams/processor/internals/TaskManagerTest.java
@@ -1178,6 +1178,36 @@ public void shouldRetryInitializationWhenLockExceptionInStateUpdater() {
 
         verify(task00).initializeIfNeeded();
         verify(task01).initializeIfNeeded();
+        verify(task00, never()).clearTaskTimeout();
+        verify(task01).clearTaskTimeout();
+        verify(tasks).addPendingTasksToInit(
+            argThat(tasksToInit -> tasksToInit.contains(task00) && !tasksToInit.contains(task01))
+        );
+        verify(stateUpdater, never()).add(task00);
+        verify(stateUpdater).add(task01);
+    }
+
+    @Test
+    public void shouldRetryInitializationWhenTimeoutExceptionInStateUpdater() {
+        final StreamTask task00 = statefulTask(taskId00, taskId00ChangelogPartitions)
+            .withInputPartitions(taskId00Partitions)
+            .inState(State.RESTORING).build();
+        final StandbyTask task01 = standbyTask(taskId01, taskId01ChangelogPartitions)
+            .withInputPartitions(taskId01Partitions)
+            .inState(State.RUNNING).build();
+        final TasksRegistry tasks = mock(TasksRegistry.class);
+        when(tasks.drainPendingTasksToInit()).thenReturn(Set.of(task00, task01));
+        final TimeoutException timeoutException = new TimeoutException("Timed out!");
+        doThrow(timeoutException).when(task00).initializeIfNeeded();
+        taskManager = setUpTaskManagerWithStateUpdater(StreamsConfigUtils.ProcessingMode.AT_LEAST_ONCE, tasks, false);
+
+        taskManager.checkStateUpdater(time.milliseconds(), noOpResetter);
+
+        verify(task00).initializeIfNeeded();
+        verify(task01).initializeIfNeeded();
+        verify(task00).maybeInitTaskTimeoutOrThrow(anyLong(), eq(timeoutException));
+        verify(task00, never()).clearTaskTimeout();
+        verify(task01).clearTaskTimeout();
         verify(tasks).addPendingTasksToInit(
             argThat(tasksToInit -> tasksToInit.contains(task00) && !tasksToInit.contains(task01))
         );
@@ -1565,7 +1595,7 @@ private void verifyTransitionToRunningOfRestoredTask(final Set<StreamTask> resto
                                                          final TasksRegistry tasks) {
         for (final StreamTask restoredTask : restoredTasks) {
             verify(restoredTask).completeRestoration(noOpResetter);
-            verify(restoredTask).clearTaskTimeout();
+            verify(restoredTask, atLeastOnce()).clearTaskTimeout();
             verify(tasks).addTask(restoredTask);
             verify(consumer).resume(restoredTask.inputPartitions());
         }
@@ -2872,40 +2902,48 @@ public void shouldAddNewActiveTasks() {
 
     @Test
     public void shouldNotCompleteRestorationIfTasksCannotInitialize() {
+        final StreamTask task00 = statefulTask(taskId00, taskId00ChangelogPartitions)
+            .withInputPartitions(taskId00Partitions)
+            .inState(State.CREATED)
+            .build();
+        final StreamTask task01 = statefulTask(taskId01, taskId01ChangelogPartitions)
+            .withInputPartitions(taskId01Partitions)
+            .inState(State.CREATED)
+            .build();
+
+        final TasksRegistry tasks = mock(TasksRegistry.class);
+        final TaskManager taskManager = setUpTaskManagerWithStateUpdater(ProcessingMode.AT_LEAST_ONCE, tasks);
         final Map<TaskId, Set<TopicPartition>> assignment = mkMap(
             mkEntry(taskId00, taskId00Partitions),
             mkEntry(taskId01, taskId01Partitions)
         );
-        final Task task00 = new StateMachineTask(taskId00, taskId00Partitions, true, stateManager) {
-            @Override
-            public void initializeIfNeeded() {
-                throw new LockException("can't lock");
-            }
-        };
-        final Task task01 = new StateMachineTask(taskId01, taskId01Partitions, true, stateManager) {
-            @Override
-            public void initializeIfNeeded() {
-                throw new TimeoutException("timed out");
-            }
-        };
-
-        when(activeTaskCreator.createTasks(any(), eq(assignment))).thenReturn(asList(task00, task01));
 
+        when(activeTaskCreator.createTasks(any(), eq(assignment)))
+            .thenReturn(asList(task00, task01));
         taskManager.handleAssignment(assignment, emptyMap());
 
-        assertThat(task00.state(), is(Task.State.CREATED));
-        assertThat(task01.state(), is(Task.State.CREATED));
+        verify(tasks).addPendingTasksToInit(asList(task00, task01));
 
-        assertThat(taskManager.tryToCompleteRestoration(time.milliseconds(), null), is(false));
+        when(tasks.drainPendingTasksToInit()).thenReturn(Set.of(task00, task01));
+        final LockException lockException = new LockException("can't lock");
+        final TimeoutException timeoutException = new TimeoutException("timeout during init");
+        doThrow(lockException).when(task00).initializeIfNeeded();
+        doThrow(timeoutException).when(task01).initializeIfNeeded();
+        when(tasks.hasPendingTasksToInit()).thenReturn(true);
 
-        assertThat(task00.state(), is(Task.State.CREATED));
-        assertThat(task01.state(), is(Task.State.CREATED));
-        assertThat(
-            taskManager.activeTaskMap(),
-            Matchers.equalTo(mkMap(mkEntry(taskId00, task00), mkEntry(taskId01, task01)))
-        );
-        assertThat(taskManager.standbyTaskMap(), Matchers.anEmptyMap());
-        verify(changeLogReader).enforceRestoreActive();
+        final boolean restorationComplete = taskManager.checkStateUpdater(time.milliseconds(), noOpResetter);
+
+        assertFalse(restorationComplete);
+        verify(task00).initializeIfNeeded();
+        verify(task01).initializeIfNeeded();
+        verify(task00, never()).maybeInitTaskTimeoutOrThrow(anyLong(), any());
+        verify(task01).maybeInitTaskTimeoutOrThrow(anyLong(), eq(timeoutException));
+        verify(task00, never()).clearTaskTimeout();
+        verify(task01, never()).clearTaskTimeout();
+        verify(tasks).addPendingTasksToInit(Collections.singleton(task00));
+        verify(tasks).addPendingTasksToInit(Collections.singleton(task01));
+        verify(stateUpdater, never()).add(task00);
+        verify(stateUpdater, never()).add(task01);
         verifyNoInteractions(consumer);
     }