diff --git a/docs/source/changelog.rst b/docs/source/changelog.rst
index 2df3850fb..4b5ab1673 100644
--- a/docs/source/changelog.rst
+++ b/docs/source/changelog.rst
@@ -27,6 +27,13 @@ Fixes
 - End the transaction even when a commit or discard raises, so the filesystem
   is not left in transaction mode and deferred temporary files are cleaned up
 
+- Percent-decode the username and password parsed from URLs in
+  ``infer_storage_options`` so that backends (ftp, sftp, smb, ...) receive
+  the real credentials rather than their URL-encoded form; a password whose
+  bare ``%`` produces bytes that are not valid UTF-8 (for example
+  ``pass%ab``) is left untouched so that pre-existing URLs with unescaped
+  ``%`` continue to work (#1871)
+
 2026.7.0
 --------
 
diff --git a/fsspec/tests/test_utils.py b/fsspec/tests/test_utils.py
index 10289b740..16a412e30 100644
--- a/fsspec/tests/test_utils.py
+++ b/fsspec/tests/test_utils.py
@@ -235,6 +235,36 @@ def test_infer_composite_protocol():
     assert out["path"] == ""
 
 
+def test_infer_options_percent_encoded_userinfo():
+    # Percent-encoded characters in the userinfo component must be decoded
+    # so that backends (ftp, sftp, smb, ...) receive the real credentials
+    # rather than the encoded form that appeared in the URL.
+    so = infer_storage_options(
+        "sftp://user%40corp:p%23ass%2Fword%20!@example.com:22/path"
+    )
+    assert so["username"] == "user@corp"
+    assert so["password"] == "p#ass/word !"
+    assert so["host"] == "example.com"
+    assert so["port"] == 22
+    assert so["path"] == "/path"
+
+    # Unencoded credentials pass through unchanged.
+    so = infer_storage_options("ftp://plainuser:plainpw@example.com/f")
+    assert so["username"] == "plainuser"
+    assert so["password"] == "plainpw"
+
+    # Backwards-compat: URLs whose password contains a bare ``%`` that is
+    # not a valid percent-escape must be preserved.  ``50%off`` (no hex
+    # after the %) and ``pass%`` (trailing %) already round-trip through
+    # ``urllib.parse.unquote``; ``pass%ab`` decodes to the byte 0xAB which
+    # is not valid UTF-8, so the loose default ``errors='replace'`` would
+    # silently corrupt it to U+FFFD.  We fall back to the raw form in that
+    # case so the caller still sees the original password.
+    for pw in ("50%off", "pass%", "pass%ab"):
+        so = infer_storage_options(f"sftp://user:{pw}@example.com/f")
+        assert so["password"] == pw, pw
+
+
 @pytest.mark.parametrize(
     "urlpath, expected_path",
     (
diff --git a/fsspec/utils.py b/fsspec/utils.py
index 5691de229..4583fe165 100644
--- a/fsspec/utils.py
+++ b/fsspec/utils.py
@@ -13,7 +13,7 @@
 from hashlib import md5
 from importlib.metadata import version
 from typing import IO, TYPE_CHECKING, Any, TypeVar
-from urllib.parse import urlsplit
+from urllib.parse import unquote, urlsplit
 
 if TYPE_CHECKING:
     import pathlib
@@ -27,6 +27,18 @@
 T = TypeVar("T")
 
 
+def _unquote_userinfo(value: str) -> str:
+    # Percent-decode a URL userinfo component (username or password).
+    # Falls back to the raw input when the decoded bytes do not form valid
+    # UTF-8, so that a literal ``%`` followed by two hex digits that happens
+    # to produce a non-UTF-8 byte (e.g. a password containing ``%ab``) is
+    # preserved instead of being replaced by U+FFFD or raising downstream.
+    try:
+        return unquote(value, errors="strict")
+    except UnicodeDecodeError:
+        return value
+
+
 def infer_storage_options(
     urlpath: str, inherit_storage_options: dict[str, Any] | None = None
 ) -> dict[str, Any]:
@@ -104,9 +116,9 @@ def infer_storage_options(
         if parsed_path.port:
             options["port"] = parsed_path.port
         if parsed_path.username:
-            options["username"] = parsed_path.username
+            options["username"] = _unquote_userinfo(parsed_path.username)
         if parsed_path.password:
-            options["password"] = parsed_path.password
+            options["password"] = _unquote_userinfo(parsed_path.password)
 
     if parsed_path.query:
         options["url_query"] = parsed_path.query