diff --git a/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.test.tsx b/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.test.tsx
index 497093dc35..b242497f31 100644
--- a/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.test.tsx
+++ b/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.test.tsx
@@ -717,4 +717,94 @@ describe('components/channel_invite_modal', () => {
         );
         expect(guestInviteLinks).toHaveLength(0);
     });
+
+    test('should NOT filter out groups when  NOT ABAC is enforced', async () => {
+        const mockGroups = [
+            {
+                id: 'group1',
+                name: 'developers',
+                display_name: 'Developers',
+                description: 'Development team',
+                source: 'ldap',
+                remote_id: 'dev-group',
+                create_at: 1234567890,
+                update_at: 1234567890,
+                delete_at: 0,
+                has_syncables: false,
+                member_count: 5,
+                scheme_admin: false,
+                allow_reference: true,
+            },
+        ];
+
+        const channelWithPolicy = {
+            ...channel,
+            policy_enforced: false,
+        };
+
+        const props = {
+            ...baseProps,
+            channel: channelWithPolicy,
+            groups: mockGroups,
+            profilesNotInCurrentChannel: [users[0]],
+        };
+
+        await act(async () => {
+            renderWithContext(<ChannelInviteModal {...props}/>);
+        });
+
+        const input = screen.getByRole('combobox', {name: /search for people/i});
+        await userEvent.type(input, '@');
+
+        // Should only show users, not groups when ABAC is enforced
+        expect(getUserSpan('user-1')).toBeInTheDocument();
+
+        // Groups should appear in the dropdown
+        expect(getUserSpan('Developers')).toBeInTheDocument();
+    });
+
+    test('should filter out groups when ABAC is enforced', async () => {
+        const mockGroups = [
+            {
+                id: 'group1',
+                name: 'developers',
+                display_name: 'Developers',
+                description: 'Development team',
+                source: 'ldap',
+                remote_id: 'dev-group',
+                create_at: 1234567890,
+                update_at: 1234567890,
+                delete_at: 0,
+                has_syncables: false,
+                member_count: 5,
+                scheme_admin: false,
+                allow_reference: true,
+            },
+        ];
+
+        const channelWithPolicy = {
+            ...channel,
+            policy_enforced: true,
+        };
+
+        const props = {
+            ...baseProps,
+            channel: channelWithPolicy,
+            groups: mockGroups,
+            profilesNotInCurrentChannel: [users[0]],
+        };
+
+        await act(async () => {
+            renderWithContext(<ChannelInviteModal {...props}/>);
+        });
+
+        const input = screen.getByRole('combobox', {name: /search for people/i});
+        await userEvent.type(input, '@');
+
+        // Should only show users, not groups when ABAC is enforced
+        expect(getUserSpan('user-1')).toBeInTheDocument();
+
+        // Groups should not appear in the dropdown
+        expect(screen.queryByText('Developers')).toBeNull();
+    });
 });
diff --git a/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.tsx b/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.tsx
index 68958f6530..a084fea0bf 100644
--- a/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.tsx
+++ b/webapp/channels/src/components/channel_invite_modal/channel_invite_modal.tsx
@@ -183,11 +183,11 @@ const ChannelInviteModalComponent = (props: Props) => {
 
         let users: UserProfileValue[];
         if (props.channel.policy_enforced) {
-        // When ABAC is enabled, only use the ABAC-filtered profilesNotInCurrentChannel
+            // When ABAC is enabled, only use the ABAC-filtered profilesNotInCurrentChannel
             const filteredUsers = filterProfilesStartingWithTerm(props.profilesNotInCurrentChannel, term);
             users = filterOutDeletedAndExcludedAndNotInTeamUsers(filteredUsers, excludedAndNotInTeamUserIds);
         } else {
-        // When ABAC is not enabled, use the current logic
+            // When ABAC is not enabled, use the current logic
             const filteredUsers = filterProfilesStartingWithTerm(props.profilesNotInCurrentChannel.concat(props.profilesInCurrentChannel), term);
             users = filterOutDeletedAndExcludedAndNotInTeamUsers(filteredUsers, excludedAndNotInTeamUserIds);
         }
@@ -198,7 +198,9 @@ const ChannelInviteModalComponent = (props: Props) => {
         }
 
         const groupsAndUsers = [
-            ...filterGroupsMatchingTerm(props.groups, term) as GroupValue[],
+
+            // Only include groups if ABAC policy is NOT enforced
+            ...(props.channel.policy_enforced ? [] : filterGroupsMatchingTerm(props.groups, term) as GroupValue[]),
             ...users,
         ].sort(sortUsersAndGroups);
 
@@ -342,7 +344,9 @@ const ChannelInviteModalComponent = (props: Props) => {
                 const promises = [
                     props.actions.searchProfiles(term, options),
                 ];
-                if (props.isGroupsEnabled) {
+
+                // Only search for groups if groups are enabled AND ABAC policy is NOT enforced
+                if (props.isGroupsEnabled && !props.channel.policy_enforced) {
                     promises.push(props.actions.searchAssociatedGroupsForReference(term, props.channel.team_id, props.channel.id, opts));
                 }
                 await Promise.all(promises);
@@ -451,11 +455,6 @@ const ChannelInviteModalComponent = (props: Props) => {
         props.channel.team_id,
         props.channel.group_constrained,
         props.actions,
-
-        // Removing these dependencies as they cause an infinite loop
-        // These profiles are updated by the actions above, which triggers the effect again
-        // props.profilesNotInCurrentChannel,
-        // props.profilesInCurrentChannel,
     ]);
 
     // Compute options with useMemo to ensure they're always fresh