diff --git a/changelogs/unreleased/sh-fix-project-branches-merge-status.yml b/changelogs/unreleased/sh-fix-project-branches-merge-status.yml
new file mode 100644
index 0000000000000000000000000000000000000000..65f41b3faf9d9073b6897c9a8f82af02f0f539b6
--- /dev/null
+++ b/changelogs/unreleased/sh-fix-project-branches-merge-status.yml
@@ -0,0 +1,5 @@
+---
+title: Fix API /project/:id/branches not returning correct merge status
+merge_request: 26785
+author:
+type: fixed
diff --git a/lib/api/branches.rb b/lib/api/branches.rb
index 07f529b01bb0941b64cc2aaf85c74832d7720326..5c98b0ad56c909e6b1de08112e0f6eb08d84347a 100644
--- a/lib/api/branches.rb
+++ b/lib/api/branches.rb
@@ -34,11 +34,11 @@ class Branches < Grape::API
         repository = user_project.repository
 
         branches = BranchesFinder.new(repository, declared_params(include_missing: false)).execute
-        branches = ::Kaminari.paginate_array(branches)
+        branches = paginate(::Kaminari.paginate_array(branches))
         merged_branch_names = repository.merged_branch_names(branches.map(&:name))
 
         present(
-          paginate(branches),
+          branches,
           with: Entities::Branch,
           current_user: current_user,
           project: user_project,
diff --git a/spec/requests/api/branches_spec.rb b/spec/requests/api/branches_spec.rb
index b38cd66986f55151dcaf846b92e50a3f64d20def..8b503777443ae39433c1570cef07d6847c7c8f93 100644
--- a/spec/requests/api/branches_spec.rb
+++ b/spec/requests/api/branches_spec.rb
@@ -20,9 +20,9 @@
     let(:route) { "/projects/#{project_id}/repository/branches" }
 
     shared_examples_for 'repository branches' do
-      RSpec::Matchers.define :has_merged_branch_names_count do |expected|
+      RSpec::Matchers.define :has_up_to_merged_branch_names_count do |expected|
         match do |actual|
-          actual[:merged_branch_names].count == expected
+          expected >= actual[:merged_branch_names].count
         end
       end
 
@@ -36,10 +36,30 @@
         expect(branch_names).to match_array(project.repository.branch_names)
       end
 
+      def check_merge_status(json_response)
+        merged, unmerged = json_response.partition { |branch| branch['merged'] }
+        merged_branches = merged.map { |branch| branch['name'] }
+        unmerged_branches = unmerged.map { |branch| branch['name'] }
+        expect(Set.new(merged_branches)).to eq(project.repository.merged_branch_names(merged_branches + unmerged_branches))
+        expect(project.repository.merged_branch_names(unmerged_branches)).to be_empty
+      end
+
       it 'determines only a limited number of merged branch names' do
-        expect(API::Entities::Branch).to receive(:represent).with(anything, has_merged_branch_names_count(2))
+        expect(API::Entities::Branch).to receive(:represent).with(anything, has_up_to_merged_branch_names_count(2)).and_call_original
 
         get api(route, current_user), params: { per_page: 2 }
+
+        expect(response).to have_gitlab_http_status(200)
+
+        check_merge_status(json_response)
+      end
+
+      it 'merge status matches reality on paginated input' do
+        get api(route, current_user), params: { per_page: 20, page: 2 }
+
+        expect(response).to have_gitlab_http_status(200)
+
+        check_merge_status(json_response)
       end
 
       context 'when repository is disabled' do