diff --git a/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness.go b/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness.go
index 58fb9990c04..6b398778160 100644
--- a/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness.go
+++ b/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness.go
@@ -21,6 +21,7 @@ import (
 	"fmt"
 	"net/http"
 	"runtime"
+	"strconv"
 	"sync"
 	"sync/atomic"
 	"time"
@@ -72,6 +73,11 @@ type priorityAndFairnessHandler struct {
 	longRunningRequestCheck apirequest.LongRunningRequestCheck
 	fcIfc                   utilflowcontrol.Interface
 	workEstimator           flowcontrolrequest.WorkEstimatorFunc
+
+	// droppedRequests tracks the history of dropped requests for
+	// the purpose of computing RetryAfter header to avoid system
+	// overload.
+	droppedRequests utilflowcontrol.DroppedRequestsTracker
 }
 
 func (h *priorityAndFairnessHandler) Handle(w http.ResponseWriter, r *http.Request) {
@@ -288,7 +294,11 @@ func (h *priorityAndFairnessHandler) Handle(w http.ResponseWriter, r *http.Reque
 
 		epmetrics.RecordDroppedRequest(r, requestInfo, epmetrics.APIServerComponent, isMutatingRequest)
 		epmetrics.RecordRequestTermination(r, requestInfo, epmetrics.APIServerComponent, http.StatusTooManyRequests)
-		tooManyRequests(r, w, retryAfter)
+		h.droppedRequests.RecordDroppedRequest(classification.PriorityLevelName)
+
+		// TODO(wojtek-t): Idea from deads2k: we can consider some jittering and in case of non-int
+		//  number, just return the truncated result and sleep the remainder server-side.
+		tooManyRequests(r, w, strconv.Itoa(int(h.droppedRequests.GetRetryAfter(classification.PriorityLevelName))))
 	}
 }
 
@@ -317,6 +327,7 @@ func WithPriorityAndFairness(
 		longRunningRequestCheck: longRunningRequestCheck,
 		fcIfc:                   fcIfc,
 		workEstimator:           workEstimator,
+		droppedRequests:         utilflowcontrol.NewDroppedRequestsTracker(),
 	}
 	return http.HandlerFunc(priorityAndFairnessHandler.Handle)
 }
diff --git a/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness_test.go b/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness_test.go
index e6116b536bc..062584177ee 100644
--- a/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness_test.go
+++ b/staging/src/k8s.io/apiserver/pkg/server/filters/priority-and-fairness_test.go
@@ -360,11 +360,12 @@ func newFakeWatchApfFilter(capacity int) *fakeWatchApfFilter {
 
 func (f *fakeWatchApfFilter) Handle(ctx context.Context,
 	requestDigest utilflowcontrol.RequestDigest,
-	_ func(fs *flowcontrol.FlowSchema, pl *flowcontrol.PriorityLevelConfiguration, flowDistinguisher string),
+	noteFn func(fs *flowcontrol.FlowSchema, pl *flowcontrol.PriorityLevelConfiguration, flowDistinguisher string),
 	_ func() fcrequest.WorkEstimate,
 	_ fq.QueueNoteFn,
 	execFn func(),
 ) {
+	noteFn(bootstrap.SuggestedFlowSchemaGlobalDefault, bootstrap.SuggestedPriorityLevelConfigurationGlobalDefault, requestDigest.User.GetName())
 	canExecute := false
 	func() {
 		f.lock.Lock()
diff --git a/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker.go b/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker.go
new file mode 100644
index 00000000000..15394120ec0
--- /dev/null
+++ b/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker.go
@@ -0,0 +1,231 @@
+/*
+Copyright 2023 The Kubernetes Authors.
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package flowcontrol
+
+import (
+	"sync"
+	"sync/atomic"
+	"time"
+
+	"k8s.io/utils/clock"
+)
+
+const (
+	// maxRetryAfter represents the maximum possible retryAfter.
+	maxRetryAfter = int64(32)
+)
+
+// DroppedRequestsTracker is an interface that allows tracking
+// a history od dropped requests in the system for the purpose
+// of adjusting RetryAfter header to avoid system overload.
+type DroppedRequestsTracker interface {
+	// RecordDroppedRequest records a request that was just
+	// dropped from processing.
+	RecordDroppedRequest(plName string)
+
+	// GetRetryAfter returns the current suggested value of
+	// RetryAfter value.
+	GetRetryAfter(plName string) int64
+}
+
+// unixStat keeps a statistic how many requests were dropped within
+// a single second.
+type unixStat struct {
+	unixTime int64
+	requests int64
+}
+
+type droppedRequestsStats struct {
+	lock sync.RWMutex
+
+	// history stores the history of dropped requests.
+	history []unixStat
+
+	// To reduce lock-contention, we store the information about
+	// the current second here, which we can then access under
+	// reader lock.
+	currentUnix  int64
+	currentCount atomic.Int64
+
+	retryAfter           atomic.Int64
+	retryAfterUpdateUnix int64
+}
+
+func newDroppedRequestsStats(nowUnix int64) *droppedRequestsStats {
+	result := &droppedRequestsStats{
+		// We assume that we can bump at any time after first dropped request.
+		retryAfterUpdateUnix: 0,
+	}
+	result.retryAfter.Store(1)
+	return result
+}
+
+func (s *droppedRequestsStats) recordDroppedRequest(unixTime int64) {
+	// Short path - if the current second matches passed time,
+	// just update the stats.
+	if done := func() bool {
+		s.lock.RLock()
+		defer s.lock.RUnlock()
+		if s.currentUnix == unixTime {
+			s.currentCount.Add(1)
+			return true
+		}
+		return false
+	}(); done {
+		return
+	}
+
+	// We trigger the change of <currentUnix>.
+	s.lock.Lock()
+	defer s.lock.Unlock()
+	if s.currentUnix == unixTime {
+		s.currentCount.Add(1)
+		return
+	}
+
+	s.updateHistory(s.currentUnix, s.currentCount.Load())
+	s.currentUnix = unixTime
+	s.currentCount.Store(1)
+
+	// We only consider updating retryAfter when bumping the current second.
+	// However, given that we didn't report anything for the current second,
+	// we recompute it based on statistics from the previous one.
+	s.updateRetryAfterIfNeededLocked(unixTime)
+}
+
+func (s *droppedRequestsStats) updateHistory(unixTime int64, count int64) {
+	s.history = append(s.history, unixStat{unixTime: unixTime, requests: count})
+
+	startIndex := 0
+	for ; startIndex < len(s.history) && unixTime-s.history[startIndex].unixTime > maxRetryAfter; startIndex++ {
+	}
+	if startIndex > 0 {
+		s.history = s.history[startIndex:]
+	}
+}
+
+// updateRetryAfterIfNeededLocked updates the retryAfter based on the number of
+// dropped requests in the last `retryAfter` seconds:
+//   - if there were less than `retryAfter` dropped requests, it decreases
+//     retryAfter
+//   - if there were at least 3*`retryAfter` dropped requests, it increases
+//     retryAfter
+//
+// The rationale behind these numbers being fairly low is that APF is queuing
+// requests and rejecting (dropping) them is a last resort, which is not expected
+// unless a given priority level is actually overloaded.
+//
+// Additionally, we rate-limit the increases of retryAfter to wait at least
+// `retryAfter' seconds after the previous increase to avoid multiple bumps
+// on a single spike.
+//
+// We're working with the interval [unixTime-retryAfter, unixTime).
+func (s *droppedRequestsStats) updateRetryAfterIfNeededLocked(unixTime int64) {
+	retryAfter := s.retryAfter.Load()
+
+	droppedRequests := int64(0)
+	if len(s.history) > 0 {
+		for i := len(s.history) - 1; i >= 0; i-- {
+			if unixTime-s.history[i].unixTime > retryAfter {
+				break
+			}
+			if s.history[i].unixTime < unixTime {
+				droppedRequests += s.history[i].requests
+			}
+		}
+	}
+
+	if unixTime-s.retryAfterUpdateUnix >= retryAfter && droppedRequests >= 3*retryAfter {
+		// We try to mimic the TCP algorithm and thus are doubling
+		// the retryAfter here.
+		retryAfter *= 2
+		if retryAfter >= maxRetryAfter {
+			retryAfter = maxRetryAfter
+		}
+		s.retryAfter.Store(retryAfter)
+		s.retryAfterUpdateUnix = unixTime
+		return
+	}
+
+	if droppedRequests < retryAfter && retryAfter > 1 {
+		// We try to mimc the TCP algorithm and thus are linearly
+		// scaling down the retryAfter here.
+		retryAfter--
+		s.retryAfter.Store(retryAfter)
+		return
+	}
+}
+
+// droppedRequestsTracker implement DroppedRequestsTracker interface
+// for the purpose of adjusting RetryAfter header for newly dropped
+// requests to avoid system overload.
+type droppedRequestsTracker struct {
+	now func() time.Time
+
+	lock    sync.RWMutex
+	plStats map[string]*droppedRequestsStats
+}
+
+// NewDroppedRequestsTracker is creating a new instance of
+// DroppedRequestsTracker.
+func NewDroppedRequestsTracker() DroppedRequestsTracker {
+	return newDroppedRequestsTracker(clock.RealClock{}.Now)
+}
+
+func newDroppedRequestsTracker(now func() time.Time) *droppedRequestsTracker {
+	return &droppedRequestsTracker{
+		now:     now,
+		plStats: make(map[string]*droppedRequestsStats),
+	}
+}
+
+func (t *droppedRequestsTracker) RecordDroppedRequest(plName string) {
+	unixTime := t.now().Unix()
+
+	stats := func() *droppedRequestsStats {
+		// The list of priority levels should change very infrequently,
+		// so in almost all cases, the fast path should be enough.
+		t.lock.RLock()
+		if plStats, ok := t.plStats[plName]; ok {
+			t.lock.RUnlock()
+			return plStats
+		}
+		t.lock.RUnlock()
+
+		// Slow path taking writer lock to update the map.
+		t.lock.Lock()
+		defer t.lock.Unlock()
+		if plStats, ok := t.plStats[plName]; ok {
+			return plStats
+		}
+		stats := newDroppedRequestsStats(unixTime)
+		t.plStats[plName] = stats
+		return stats
+	}()
+
+	stats.recordDroppedRequest(unixTime)
+}
+
+func (t *droppedRequestsTracker) GetRetryAfter(plName string) int64 {
+	t.lock.RLock()
+	defer t.lock.RUnlock()
+
+	if plStats, ok := t.plStats[plName]; ok {
+		return plStats.retryAfter.Load()
+	}
+	return 1
+}
diff --git a/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker_test.go b/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker_test.go
new file mode 100644
index 00000000000..2962d25ae43
--- /dev/null
+++ b/staging/src/k8s.io/apiserver/pkg/util/flowcontrol/dropped_requests_tracker_test.go
@@ -0,0 +1,170 @@
+/*
+Copyright 2021 The Kubernetes Authors.
+
+Licensed under the Apache License, Version 2.0 (the "License");
+you may not use this file except in compliance with the License.
+You may obtain a copy of the License at
+
+    http://www.apache.org/licenses/LICENSE-2.0
+
+Unless required by applicable law or agreed to in writing, software
+distributed under the License is distributed on an "AS IS" BASIS,
+WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+See the License for the specific language governing permissions and
+limitations under the License.
+*/
+
+package flowcontrol
+
+import (
+	"fmt"
+	"sync"
+	"testing"
+	"time"
+
+	testingclock "k8s.io/utils/clock/testing"
+)
+
+func TestDroppedRequestsTracker(t *testing.T) {
+	fakeClock := testingclock.NewFakeClock(time.Now())
+	tracker := newDroppedRequestsTracker(fakeClock.Now)
+
+	// The following table represents the list over time of:
+	// - seconds elapsed (as computed since the initial time)
+	// - requests that will be recorded as dropped in a current second
+	steps := []struct {
+		secondsElapsed int
+		// droppedRequests is the number of requests to drop, after
+		// secondsElapsed.
+		droppedRequests int
+		// retryAfter is the expected retryAfter after all dropped
+		// requests are recorded via RecordDroppedRequest.
+		retryAfter int64
+	}{
+		{secondsElapsed: 0, droppedRequests: 5, retryAfter: 1},
+		{secondsElapsed: 1, droppedRequests: 11, retryAfter: 2},
+		// Check that we don't bump immediately after despite
+		// multiple dropped requests.
+		{secondsElapsed: 2, droppedRequests: 1, retryAfter: 2},
+		{secondsElapsed: 3, droppedRequests: 11, retryAfter: 4},
+		{secondsElapsed: 4, droppedRequests: 1, retryAfter: 4},
+		{secondsElapsed: 7, droppedRequests: 1, retryAfter: 8},
+		{secondsElapsed: 11, droppedRequests: 1, retryAfter: 8},
+		{secondsElapsed: 15, droppedRequests: 1, retryAfter: 7},
+		{secondsElapsed: 17, droppedRequests: 1, retryAfter: 6},
+		{secondsElapsed: 21, droppedRequests: 14, retryAfter: 5},
+		{secondsElapsed: 22, droppedRequests: 1, retryAfter: 10},
+	}
+
+	for i, step := range steps {
+		secondsToAdvance := step.secondsElapsed
+		if i > 0 {
+			secondsToAdvance -= steps[i-1].secondsElapsed
+		}
+		fakeClock.Step(time.Duration(secondsToAdvance) * time.Second)
+
+		// Record only first dropped request and recompute retryAfter.
+		for r := 0; r < step.droppedRequests; r++ {
+			tracker.RecordDroppedRequest("pl")
+		}
+		if retryAfter := tracker.GetRetryAfter("pl"); retryAfter != step.retryAfter {
+			t.Errorf("Unexpected retryAfter: %v, expected: %v", retryAfter, step.retryAfter)
+		}
+
+	}
+}
+
+func TestDroppedRequestsTrackerPLIndependent(t *testing.T) {
+	fakeClock := testingclock.NewFakeClock(time.Now())
+	tracker := newDroppedRequestsTracker(fakeClock.Now)
+
+	// Report single dropped requests in multiple PLs.
+	// Validate if RetryAfter isn't bumped next second.
+	for i := 0; i < 10; i++ {
+		tracker.RecordDroppedRequest(fmt.Sprintf("pl-%d", i))
+	}
+	fakeClock.Step(time.Second)
+	for i := 0; i < 10; i++ {
+		tracker.RecordDroppedRequest(fmt.Sprintf("pl-%d", i))
+		retryAfter := tracker.GetRetryAfter(fmt.Sprintf("pl-%d", i))
+		if retryAfter != 1 {
+			t.Errorf("Unexpected retryAfter for pl-%d: %v", i, retryAfter)
+		}
+	}
+
+	// Record few droped requests on a single PL.
+	// Validate that RetryAfter is bumped only for this PL.
+	for i := 0; i < 5; i++ {
+		tracker.RecordDroppedRequest("pl-0")
+	}
+	fakeClock.Step(time.Second)
+	for i := 0; i < 10; i++ {
+		tracker.RecordDroppedRequest(fmt.Sprintf("pl-%d", i))
+		retryAfter := tracker.GetRetryAfter(fmt.Sprintf("pl-%d", i))
+		switch i {
+		case 0:
+			if retryAfter != 2 {
+				t.Errorf("Unexpected retryAfter for pl-0: %v", retryAfter)
+			}
+		default:
+			if retryAfter != 1 {
+				t.Errorf("Unexpected retryAfter for pl-%d: %v", i, retryAfter)
+			}
+		}
+	}
+	// Validate also PL for which no dropped requests was recorded.
+	if retryAfter := tracker.GetRetryAfter("other-pl"); retryAfter != 1 {
+		t.Errorf("Unexpected retryAfter for other-pl: %v", retryAfter)
+	}
+}
+
+func BenchmarkDroppedRequestsTracker(b *testing.B) {
+	b.StopTimer()
+
+	fakeClock := testingclock.NewFakeClock(time.Now())
+	tracker := newDroppedRequestsTracker(fakeClock.Now)
+
+	startCh := make(chan struct{})
+	wg := sync.WaitGroup{}
+	numPLs := 5
+	// For all `numPLs` priority levels, create b.N workers each
+	// of which will try to record a dropped request every 100ms
+	// with a random jitter.
+	for i := 0; i < numPLs; i++ {
+		plName := fmt.Sprintf("priority-level-%d", i)
+		for i := 0; i < b.N; i++ {
+			wg.Add(1)
+			go func() {
+				defer wg.Done()
+				<-startCh
+
+				for a := 0; a < 5; a++ {
+					tracker.RecordDroppedRequest(plName)
+					time.Sleep(25 * time.Millisecond)
+				}
+			}()
+		}
+	}
+	// Time-advancing goroutine.
+	stopCh := make(chan struct{})
+	timeWg := sync.WaitGroup{}
+	timeWg.Add(1)
+	go func() {
+		defer timeWg.Done()
+		for {
+			select {
+			case <-stopCh:
+				return
+			case <-time.After(25 * time.Millisecond):
+				fakeClock.Step(time.Second)
+			}
+		}
+	}()
+
+	b.StartTimer()
+	close(startCh)
+	wg.Wait()
+
+	close(stopCh)
+	timeWg.Wait()
+}