diff --git a/src/languageservice/services/yamlOnTypeFormatting.ts b/src/languageservice/services/yamlOnTypeFormatting.ts
index 27f80dcda..cedb48b75 100644
--- a/src/languageservice/services/yamlOnTypeFormatting.ts
+++ b/src/languageservice/services/yamlOnTypeFormatting.ts
@@ -46,8 +46,33 @@ export function doDocumentOnTypeFormatting(
       return [TextEdit.insert(position, ' '.repeat(params.options.tabSize))];
     }
 
-    if (previousLine.includes(' - ') && !previousLine.includes(': ')) {
-      return [TextEdit.insert(position, '- ')];
+    if (previousLine.trimStart().startsWith('-') && !previousLine.includes(': ')) {
+      const indentation = previousLine.slice(0, previousLine.length - previousLine.trimStart().length);
+      const expectedText = indentation + '- ';
+      const currentLine = tb.getLineContent(position.line).replace('\r', '').replace('\n', '');
+      if (currentLine.trim().length !== 0) {
+        // non-space content, do nothing
+        return;
+      }
+      if (currentLine === expectedText) {
+        // already right; do nothing
+        return;
+      }
+      if (position.character >= indentation.length) {
+        // The client already auto-indented the line and placed the cursor at
+        // (or past) the indentation; just append the dash.
+        return [TextEdit.insert(Position.create(position.line, currentLine.length), '- ')];
+      }
+      // The client sent a position before the existing whitespace
+      // (e.g. lsp-mode, eglot send column 0 even though the line already has
+      // auto-indented spaces).  Replace the whole line content so the
+      // result is always correct.
+      return [
+        TextEdit.replace(
+          Range.create(Position.create(position.line, 0), Position.create(position.line, currentLine.length)),
+          expectedText
+        ),
+      ];
     }
 
     if (previousLine.includes(' - ') && previousLine.includes(': ')) {
diff --git a/test/yamlOnTypeFormatting.test.ts b/test/yamlOnTypeFormatting.test.ts
index e42ea779e..3c56365a9 100644
--- a/test/yamlOnTypeFormatting.test.ts
+++ b/test/yamlOnTypeFormatting.test.ts
@@ -40,6 +40,22 @@ describe('YAML On Type Formatter', () => {
     expect(result[0]).to.eqls(TextEdit.insert(pos, '- '));
   });
 
+  it('should preserve list element indentation after newline', () => {
+    const doc = setupTextDocument('test:\n  - hello\n  - world\n');
+    const pos = Position.create(3, 0);
+    const params = createParams(pos);
+    const result = doDocumentOnTypeFormatting(doc, params);
+    expect(result[0]).to.eql(TextEdit.insert(pos, '  - '));
+  });
+
+  it('should align list element dash after existing client-side indentation', () => {
+    const doc = setupTextDocument('test:\n  - hello\n  - world\n  ');
+    const pos = Position.create(3, 0);
+    const params = createParams(pos);
+    const result = doDocumentOnTypeFormatting(doc, params);
+    expect(result[0]).to.eql(TextEdit.replace(Range.create(Position.create(3, 0), Position.create(3, 2)), '  - '));
+  });
+
   it('should add indentation for mapping in array', () => {
     const doc = setupTextDocument('some:\n  - arr:\n  ');
     const pos = Position.create(2, 2);