diff --git a/module/os/linux/zfs/zfs_vnops_os.c b/module/os/linux/zfs/zfs_vnops_os.c
index 8061169c3..9803c7fec 100644
--- a/module/os/linux/zfs/zfs_vnops_os.c
+++ b/module/os/linux/zfs/zfs_vnops_os.c
@@ -1789,24 +1789,36 @@ zfs_setattr_dir(znode_t *dzp)
 			    &gid, sizeof (gid));
 		}
 
-		if (zp->z_projid != dzp->z_projid) {
+
+		uint64_t projid = dzp->z_projid;
+		if (zp->z_projid != projid) {
 			if (!(zp->z_pflags & ZFS_PROJID)) {
-				zp->z_pflags |= ZFS_PROJID;
-				SA_ADD_BULK_ATTR(bulk, count,
-				    SA_ZPL_FLAGS(zfsvfs), NULL, &zp->z_pflags,
-				    sizeof (zp->z_pflags));
+				err = sa_add_projid(zp->z_sa_hdl, tx, projid);
+				if (unlikely(err == EEXIST)) {
+					err = 0;
+				} else if (err != 0) {
+					goto sa_add_projid_err;
+				} else {
+					projid = ZFS_INVALID_PROJID;
+				}
 			}
 
-			zp->z_projid = dzp->z_projid;
-			SA_ADD_BULK_ATTR(bulk, count, SA_ZPL_PROJID(zfsvfs),
-			    NULL, &zp->z_projid, sizeof (zp->z_projid));
+			if (projid != ZFS_INVALID_PROJID) {
+				zp->z_projid = projid;
+				SA_ADD_BULK_ATTR(bulk, count,
+				    SA_ZPL_PROJID(zfsvfs), NULL, &zp->z_projid,
+				    sizeof (zp->z_projid));
+			}
 		}
 
+sa_add_projid_err:
 		mutex_exit(&dzp->z_lock);
 
 		if (likely(count > 0)) {
 			err = sa_bulk_update(zp->z_sa_hdl, bulk, count, tx);
 			dmu_tx_commit(tx);
+		} else if (projid == ZFS_INVALID_PROJID) {
+			dmu_tx_commit(tx);
 		} else {
 			dmu_tx_abort(tx);
 		}
diff --git a/tests/zfs-tests/tests/functional/upgrade/upgrade_projectquota_001_pos.ksh b/tests/zfs-tests/tests/functional/upgrade/upgrade_projectquota_001_pos.ksh
index 2ad37e06a..2c365e37a 100755
--- a/tests/zfs-tests/tests/functional/upgrade/upgrade_projectquota_001_pos.ksh
+++ b/tests/zfs-tests/tests/functional/upgrade/upgrade_projectquota_001_pos.ksh
@@ -63,6 +63,7 @@ log_must mkfiles $TESTDIR/fs2/tf $((RANDOM % 100 + 1))
 log_must zfs create $TESTPOOL/fs3
 log_must mkdir $TESTDIR/fs3/dir
 log_must mkfiles $TESTDIR/fs3/tf $((RANDOM % 100 + 1))
+log_must set_xattr_stdin passwd $TESTDIR/fs3/dir < /etc/passwd
 
 # Make sure project quota is disabled
 zfs projectspace -o used $TESTPOOL | grep -q "USED" &&
@@ -109,9 +110,23 @@ log_must chattr -p 100 $TESTDIR/fs3/dir
 log_must sleep 5 # upgrade done in the background so let's wait for a while
 zfs projectspace -o used $TESTPOOL/fs3 | grep -q "USED" ||
 	log_fail "project quota should be enabled for $TESTPOOL/fs3"
+dirino=$(stat -c '%i' $TESTDIR/fs3/dir)
+log_must zdb -ddddd $TESTPOOL/fs3 $dirino
+xattrdirino=$(zdb -ddddd $TESTPOOL/fs3 $dirino |grep -w "xattr" |awk '{print $2}')
+echo "xattrdirino: $xattrdirino"
+expectedcnt=1
+echo "expectedcnt: $expectedcnt"
+if [ "$xattrdirino" != "" ]; then
+	expectedcnt=$(($expectedcnt + 1))
+	echo "expectedcnt: $expectedcnt"
+	log_must zdb -ddddd $TESTPOOL/fs3 $xattrdirino
+	xattrinocnt=$(zdb -ddddd $TESTPOOL/fs3 $xattrdirino |grep -w "(type:" |wc -l)
+	echo "xattrinocnt: $xattrinocnt"
+	expectedcnt=$(($expectedcnt + $xattrinocnt))
+	echo "expectedcnt: $expectedcnt"
+fi
 cnt=$(get_prop projectobjused@100 $TESTPOOL/fs3)
-# if 'xattr=on', then 'cnt = 2'
-[[ $cnt -ne 1 ]] && [[ $cnt -ne 2 ]] &&
+[[ $cnt -ne $expectedcnt ]] &&
 	log_fail "projectquota accounting failed $cnt"
 
 # All in all, after having been through this, the dataset for testpool