diff --git a/ethcore/src/client/client.rs b/ethcore/src/client/client.rs
index caa92db97..c62364dce 100644
--- a/ethcore/src/client/client.rs
+++ b/ethcore/src/client/client.rs
@@ -391,7 +391,8 @@ impl<V> BlockChainClient for Client<V> where V: Verifier {
 	}
 
 	// TODO [todr] Should be moved to miner crate eventually.
-	fn prepare_sealing(&self, author: Address, gas_floor_target: U256, extra_data: Bytes, transactions: Vec<SignedTransaction>) -> Option<ClosedBlock> {
+	fn prepare_sealing(&self, author: Address, gas_floor_target: U256, extra_data: Bytes, transactions: Vec<SignedTransaction>)
+		-> Option<(ClosedBlock, HashSet<H256>)> {
 		let engine = self.engine.deref().deref();
 		let h = self.chain.best_block_hash();
 
@@ -417,21 +418,40 @@ impl<V> BlockChainClient for Client<V> where V: Verifier {
 
 		// Add transactions
 		let block_number = b.block().header().number();
+		let min_tx_gas = U256::from(self.engine.schedule(&b.env_info()).tx_gas);
+		let mut invalid_transactions = HashSet::new();
+
 		for tx in transactions {
+			// Push transaction to block
+			let hash = tx.hash();
 			let import = b.push_transaction(tx, None);
-			if let Err(e) = import {
-				trace!("Error adding transaction to block: number={}. Error: {:?}", block_number, e);
+
+			match import {
+				Err(Error::Execution(ExecutionError::BlockGasLimitReached { gas_limit, gas_used, .. })) => {
+					trace!(target: "miner", "Skipping adding transaction to block because of gas limit: {:?}", hash);
+					// Exit early if gas left is smaller then min_tx_gas
+					if gas_limit - gas_used < min_tx_gas {
+						break;
+					}
+				},
+				Err(e) => {
+					invalid_transactions.insert(hash);
+					trace!(target: "miner",
+						   "Error adding transaction to block: number={}. transaction_hash={:?}, Error: {:?}",
+						   block_number, hash, e);
+				},
+				_ => {}
 			}
 		}
 
 		// And close
 		let b = b.close();
-		trace!("Sealing: number={}, hash={}, diff={}",
+		trace!(target: "miner", "Sealing: number={}, hash={}, diff={}",
 			   b.block().header().number(),
 			   b.hash(),
 			   b.block().header().difficulty()
 		);
-		Some(b)
+		Some((b, invalid_transactions))
 	}
 
 	fn block_header(&self, id: BlockId) -> Option<Bytes> {
diff --git a/ethcore/src/client/mod.rs b/ethcore/src/client/mod.rs
index 88e07d0b1..198e918f7 100644
--- a/ethcore/src/client/mod.rs
+++ b/ethcore/src/client/mod.rs
@@ -26,6 +26,7 @@ pub use self::config::{ClientConfig, BlockQueueConfig, BlockChainConfig};
 pub use self::ids::{BlockId, TransactionId};
 pub use self::test_client::{TestBlockChainClient, EachBlockWith};
 
+use std::collections::HashSet;
 use util::bytes::Bytes;
 use util::hash::{Address, H256, H2048};
 use util::numbers::U256;
@@ -110,7 +111,8 @@ pub trait BlockChainClient : Sync + Send {
 
 	// TODO [todr] Should be moved to miner crate eventually.
 	/// Returns ClosedBlock prepared for sealing.
-	fn prepare_sealing(&self, author: Address, gas_floor_target: U256, extra_data: Bytes, transactions: Vec<SignedTransaction>) -> Option<ClosedBlock>;
+	fn prepare_sealing(&self, author: Address, gas_floor_target: U256, extra_data: Bytes, transactions: Vec<SignedTransaction>)
+		-> Option<(ClosedBlock, HashSet<H256>)>;
 
 	// TODO [todr] Should be moved to miner crate eventually.
 	/// Attempts to seal given block. Returns `SealedBlock` on success and the same block in case of error.
diff --git a/ethcore/src/client/test_client.rs b/ethcore/src/client/test_client.rs
index 83511b1cc..e351011f2 100644
--- a/ethcore/src/client/test_client.rs
+++ b/ethcore/src/client/test_client.rs
@@ -217,7 +217,7 @@ impl BlockChainClient for TestBlockChainClient {
 		unimplemented!();
 	}
 
-	fn prepare_sealing(&self, _author: Address, _gas_floor_target: U256, _extra_data: Bytes, _transactions: Vec<SignedTransaction>) -> Option<ClosedBlock> {
+	fn prepare_sealing(&self, _author: Address, _gas_floor_target: U256, _extra_data: Bytes, _transactions: Vec<SignedTransaction>) -> Option<(ClosedBlock, HashSet<H256>)> {
 		unimplemented!()
 	}
 
diff --git a/ethcore/src/tests/client.rs b/ethcore/src/tests/client.rs
index d9fae0527..64a2222b1 100644
--- a/ethcore/src/tests/client.rs
+++ b/ethcore/src/tests/client.rs
@@ -144,7 +144,7 @@ fn can_mine() {
 	let client_result = get_test_client_with_blocks(vec![dummy_blocks[0].clone()]);
 	let client = client_result.reference();
 
-	let b = client.prepare_sealing(Address::default(), x!(31415926), vec![], vec![]).unwrap();
+	let b = client.prepare_sealing(Address::default(), x!(31415926), vec![], vec![]).unwrap().0;
 
 	assert_eq!(*b.block().header().parent_hash(), BlockView::new(&dummy_blocks[0]).header_view().sha3());
 	assert!(client.try_seal(b, vec![]).is_ok());
diff --git a/miner/src/miner.rs b/miner/src/miner.rs
index 7bbde6294..4448b721b 100644
--- a/miner/src/miner.rs
+++ b/miner/src/miner.rs
@@ -132,7 +132,18 @@ impl MinerService for Miner {
 			self.extra_data(),
 			transactions,
 		);
-		*self.sealing_block.lock().unwrap() = b;
+
+		*self.sealing_block.lock().unwrap() = b.map(|(block, invalid_transactions)| {
+			let mut queue = self.transaction_queue.lock().unwrap();
+			queue.remove_all(
+				&invalid_transactions.into_iter().collect::<Vec<H256>>(),
+				|a: &Address| AccountDetails {
+					nonce: chain.nonce(a),
+					balance: chain.balance(a),
+				}
+			);
+			block
+		});
 	}
 
 	fn sealing_block(&self, chain: &BlockChainClient) -> &Mutex<Option<ClosedBlock>> {