diff --git a/worlds/sc2/__init__.py b/worlds/sc2/__init__.py
index b5c7b5f0cf..983b329d7d 100644
--- a/worlds/sc2/__init__.py
+++ b/worlds/sc2/__init__.py
@@ -148,7 +148,6 @@ class SC2World(World):
         flag_start_inventory(self, item_list)
         flag_unused_upgrade_types(self, item_list)
         flag_unreleased_items(item_list)
-        flag_user_excluded_item_sets(self, item_list)
         flag_war_council_items(self, item_list)
         flag_and_add_resource_locations(self, item_list)
         flag_mission_order_required_items(self, item_list)
@@ -394,6 +393,17 @@ def create_and_flag_explicit_item_locks_and_excludes(world: SC2World) -> List[Fi
     if world.options.exclude_overpowered_items.value == ExcludeOverpoweredItems.option_true:
         for item_name in item_groups.overpowered_items:
             auto_excludes[item_name] = 1
+    if world.options.vanilla_items_only.value == VanillaItemsOnly.option_true:
+        for item_name, item_data in item_tables.item_table.items():
+            if item_name in item_groups.terran_original_progressive_upgrades:
+                auto_excludes[item_name] = max(item_data.quantity - 1, auto_excludes.get(item_name, 0))
+            elif item_name in item_groups.vanilla_items:
+                continue
+            elif item_name in item_groups.nova_equipment:
+                continue
+            else:
+                auto_excludes[item_name] = 0
+
 
     result: List[FilterItem] = []
     for item_name, item_data in item_tables.item_table.items():
@@ -836,26 +846,6 @@ def flag_unreleased_items(item_list: List[FilterItem]) -> None:
             item.flags |= ItemFilterFlags.Removed
 
 
-def flag_user_excluded_item_sets(world: SC2World, item_list: List[FilterItem]) -> None:
-    """Excludes items based on item set options (`only_vanilla_items`)"""
-    vanilla_nonprogressive_count = {
-        item_name: 0 for item_name in item_groups.terran_original_progressive_upgrades
-    }
-    if world.options.vanilla_items_only.value == VanillaItemsOnly.option_true:
-        vanilla_items = item_groups.vanilla_items + item_groups.nova_equipment
-        for item in item_list:
-            if ItemFilterFlags.UserExcluded in item.flags:
-                continue
-            if item.name not in vanilla_items:
-                item.flags |= ItemFilterFlags.UserExcluded
-            if item.name in item_groups.terran_original_progressive_upgrades:
-                if vanilla_nonprogressive_count[item.name]:
-                    item.flags |= ItemFilterFlags.UserExcluded
-                vanilla_nonprogressive_count[item.name] += 1
-
-    excluded_count: Dict[str, int] = dict()
-
-
 def flag_war_council_items(world: SC2World, item_list: List[FilterItem]) -> None:
     """Excludes / start-inventories items based on `nerf_unit_baselines` option.
     Will skip items that are excluded by other sources."""
diff --git a/worlds/sc2/test/test_generation.py b/worlds/sc2/test/test_generation.py
index 61de392c0c..9a95058720 100644
--- a/worlds/sc2/test/test_generation.py
+++ b/worlds/sc2/test/test_generation.py
@@ -325,6 +325,53 @@ class TestItemFiltering(Sc2SetupTestBase):
             if item_data.quantity == 0:
                 continue
             self.assertIn(item_name, item_groups.vanilla_items + item_groups.nova_equipment)
+    
+    def test_vanilla_items_only_can_unexclude_items(self) -> None:
+        world_options = {
+            # Ensuring an excess of locations so expected items don't get culled
+            **self.ALL_CAMPAIGNS,
+            'mission_order': options.MissionOrder.option_grid,
+            'maximum_campaign_size': options.MaximumCampaignSize.range_end,
+            'enable_race_swap': options.EnableRaceSwapVariants.option_shuffle_all,
+            'selected_races': {SC2Race.TERRAN.get_title()},
+            # Options under test
+            'vanilla_items_only': True,
+            'unexcluded_items': {
+                item_names.PROGRESSIVE_FIRE_SUPPRESSION_SYSTEM: 0,
+                item_names.WARHOUND: 1,
+                item_groups.ItemGroupNames.TERRAN_STIMPACKS: 0,
+            },
+            # Avoid options that lock non-vanilla items for logic
+            'required_tactics': options.RequiredTactics.option_any_units,
+            'mastery_locations': options.MasteryLocations.option_disabled,
+            # Move the unit nerf items from the start inventory to the pool,
+            # else this option could push non-vanilla items past this test
+            'war_council_nerfs': True,
+        }
+        self.generate_world(world_options)
+        world_items = [item.name for item in self.multiworld.itempool]
+        self.assertTrue(world_items)
+        self.assertNotIn(item_names.MARAUDER_MAGRAIL_MUNITIONS, world_items)
+        self.assertEqual(world_items.count(item_names.PROGRESSIVE_FIRE_SUPPRESSION_SYSTEM), 2)
+        self.assertIn(item_names.WARHOUND, world_items)
+        self.assertIn(item_names.MARAUDER_PROGRESSIVE_STIMPACK, world_items)
+        self.assertIn(item_names.REAPER_PROGRESSIVE_STIMPACK, world_items)
+    
+    def test_vanilla_items_only_and_exclude_op_items_together_allow_one_level_of_regen_biosteel(self) -> None:
+        world_options = {
+            # Ensuring an excess of locations so expected items don't get culled
+            **self.ALL_CAMPAIGNS,
+            'mission_order': options.MissionOrder.option_grid,
+            'maximum_campaign_size': options.MaximumCampaignSize.range_end,
+            'enable_race_swap': options.EnableRaceSwapVariants.option_shuffle_all,
+            'selected_races': {SC2Race.TERRAN.get_title()},
+            # Options under test
+            'vanilla_items_only': True,
+            'exclude_overpowered_items': True,
+        }
+        self.generate_world(world_options)
+        world_items = [item.name for item in self.multiworld.itempool]
+        self.assertEqual(world_items.count(item_names.PROGRESSIVE_REGENERATIVE_BIO_STEEL), 1)
 
     def test_evil_awoken_with_vanilla_items_only_generates(self) -> None:
         world_options = {