diff --git a/lib/bfd.c b/lib/bfd.c
index cc8c6857afa4..3c965699ace3 100644
--- a/lib/bfd.c
+++ b/lib/bfd.c
@@ -149,6 +149,9 @@ BUILD_ASSERT_DECL(BFD_PACKET_LEN == sizeof(struct msg));
 #define FLAGS_MASK 0x3f
 #define DEFAULT_MULT 3
 
+#define BFD_DEFAULT_SRC_IP 0xA9FE0101 /* 169.254.1.1 */
+#define BFD_DEFAULT_DST_IP 0xA9FE0100 /* 169.254.1.0 */
+
 struct bfd {
     struct hmap_node node;        /* In 'all_bfds'. */
     uint32_t disc;                /* bfd.LocalDiscr. Key in 'all_bfds' hmap. */
@@ -457,9 +460,9 @@ bfd_configure(struct bfd *bfd, const char *name, const struct smap *cfg,
                          &bfd->rmt_eth_dst);
 
     bfd_lookup_ip(smap_get_def(cfg, "bfd_src_ip", ""),
-                  htonl(0xA9FE0101) /* 169.254.1.1 */, &bfd->ip_src);
+                  htonl(BFD_DEFAULT_SRC_IP), &bfd->ip_src);
     bfd_lookup_ip(smap_get_def(cfg, "bfd_dst_ip", ""),
-                  htonl(0xA9FE0100) /* 169.254.1.0 */, &bfd->ip_dst);
+                  htonl(BFD_DEFAULT_DST_IP), &bfd->ip_dst);
 
     forwarding_if_rx = smap_get_bool(cfg, "forwarding_if_rx", false);
     if (bfd->forwarding_if_rx != forwarding_if_rx) {
@@ -674,7 +677,14 @@ bfd_should_process_flow(const struct bfd *bfd_, const struct flow *flow,
         memset(&wc->masks.nw_proto, 0xff, sizeof wc->masks.nw_proto);
         if (flow->nw_proto == IPPROTO_UDP
             && !(flow->nw_frag & FLOW_NW_FRAG_LATER)
-            && tp_dst_equals(flow, BFD_DEST_PORT, wc)) {
+            && tp_dst_equals(flow, BFD_DEST_PORT, wc)
+            && (bfd->ip_src == htonl(BFD_DEFAULT_SRC_IP)
+                || bfd->ip_src == flow->nw_dst)) {
+
+            if (bfd->ip_src == flow->nw_dst) {
+                memset(&wc->masks.nw_dst, 0xffffffff, sizeof wc->masks.nw_dst);
+            }
+
             bool check_tnl_key;
 
             atomic_read_relaxed(&bfd->check_tnl_key, &check_tnl_key);
diff --git a/tests/system-traffic.at b/tests/system-traffic.at
index 2a0fbadff4a1..80b58996d530 100644
--- a/tests/system-traffic.at
+++ b/tests/system-traffic.at
@@ -6289,3 +6289,45 @@ OVS_WAIT_UNTIL([cat p2.pcap | egrep "0x0050: *0000 *0000 *5002 *2000 *b85e *0000
 
 OVS_TRAFFIC_VSWITCHD_STOP
 AT_CLEANUP
+
+AT_SETUP([bfd - BFD overlay])
+OVS_CHECK_GENEVE()
+
+OVS_TRAFFIC_VSWITCHD_START()
+
+AT_CHECK([ovs-vsctl -- set bridge br0 other-config:hwaddr=\"f2:ff:00:00:00:01\"])
+ADD_BR([br-underlay], [set bridge br-underlay other-config:hwaddr=\"ee:09:e0:4d:bf:31\"])
+
+AT_CHECK([ovs-ofctl add-flow br0 "actions=normal"])
+AT_CHECK([ovs-ofctl add-flow br-underlay "actions=normal"])
+
+ADD_NAMESPACES(at_ns0)
+
+dnl Set up underlay link from host into the namespace using veth pair.
+ADD_VETH(p0, at_ns0, br-underlay, "172.16.180.105/24", 4e:12:5d:6c:74:3d)
+AT_CHECK([ip addr add dev br-underlay "172.16.180.106/24"])
+AT_CHECK([ip link set dev br-underlay up])
+
+dnl Set up tunnel endpoints on OVS outside the namespace.
+ADD_OVS_TUNNEL([geneve], [br0], [at_gnv0], [172.16.180.105], [192.168.10.100/24],
+                [options:packet_type=ptap])
+
+dnl Certain Linux distributions, like CentOS, have default iptable rules
+dnl to reject input traffic from br-underlay. Here we add a rule to walk
+dnl around it.
+iptables -I INPUT 1 -i br-underlay -j ACCEPT
+on_exit 'iptables -D INPUT 1'
+
+dnl Firstly, test normal BFD packet.
+ovs-ofctl -O OpenFlow13 packet-out br-underlay "in_port=1 packet=ee09e04dbf314e125d6c743d080045c0006624d94000401153f9ac10b469ac10b46a739f17c1005247f900806558000000000023200000016a0f5a9ed376080045c0003400000000ff11fa03ac10b469ac10b46ac0070ec80020000021c003187b3c96ebbc96b962000186a0000f424000000000 actions=NORMAL"
+dnl Next we test overlay BFD packet.
+ovs-ofctl -O OpenFlow13 packet-out br-underlay "in_port=1 packet=ee09e04dbf314e125d6c743d08004500005b2558400040115445ac10b469ac10b46a6b1017c1004722c1024065580000000001048001001803005254009d0b6d5254000c89840800450000210e22400040119688c0a80a68c0a80a6995cd0ec8000dd342746573740a actions=NORMAL"
+
+ovs-dpctl dump-flows > datapath-flows.txt
+dnl BFD packet was handled by BFD flow.
+AT_FAIL_IF([cat datapath-flows.txt | egrep "tunnel\(.*,src=172.16.180.105,dst=172.16.180.106,.*,eth\(\),eth_type\(0x0800\),ipv4\(proto=17,.*\),udp\(dst=3784\), .*, actions:userspace\(pid=.*,slow_path\(bfd\)\)" 2>&1 1>/dev/null])
+dnl Overlay BFD packet was handled by non-BFD flows.
+AT_FAIL_IF([cat datapath-flows.txt | egrep "tunnel\(.*,src=172.16.180.105,dst=172.16.180.106,.*,eth\(.*\),eth_type\(0x0800\),ipv4\(src=192.168.10.104,dst=192.168.10.105,proto=17,.*\),udp\(.*,dst=3784\), .*, actions:drop" 2>&1 1>/dev/null])
+
+OVS_TRAFFIC_VSWITCHD_STOP
+AT_CLEANUP
diff --git a/vswitchd/vswitch.xml b/vswitchd/vswitch.xml
index b6acb34ca1b8..e1f895134ff2 100644
--- a/vswitchd/vswitch.xml
+++ b/vswitchd/vswitch.xml
@@ -3662,6 +3662,13 @@ ovs-vsctl add-port br0 p0 -- set Interface p0 type=patch options:peer=p1 \
         optional Authentication or ``Echo Mode'' features.
       </p>
 
+      <p>
+        OVS 2.13 and earlier intercepted and processed all BFD packets.
+        OVS 2.14 and later only intercept and process BFD packets destined
+        to a configured BFD instance, and other BFD packets are made available
+        to the OVS flow table for forwarding.
+      </p>
+
       <group title="BFD Configuration">
         <p>
           A controller sets up key-value pairs in the <ref column="bfd"/>
