diff --git a/packages/relay/src/lib/constants.ts b/packages/relay/src/lib/constants.ts
index 4f83760c05..8b5a92ee45 100644
--- a/packages/relay/src/lib/constants.ts
+++ b/packages/relay/src/lib/constants.ts
@@ -55,6 +55,7 @@ export default {
     BLOCK_GAS_LIMIT: 15_000_000,
     ISTANBUL_TX_DATA_NON_ZERO_COST: 16,
     TX_BASE_COST: 21_000,
+    TX_HOLLOW_ACCOUNT_CREATION_GAS: 587_000,
     TX_DEFAULT_GAS: 400_000,
     TX_CREATE_EXTRA: 32_000,
     TX_DATA_ZERO_COST: 4,
diff --git a/packages/relay/src/lib/eth.ts b/packages/relay/src/lib/eth.ts
index 434fc078af..5472ad8ff7 100644
--- a/packages/relay/src/lib/eth.ts
+++ b/packages/relay/src/lib/eth.ts
@@ -53,6 +53,7 @@ export class EthImpl implements Eth {
   static emptyBloom = "0x00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000";
   static defaultGas = EthImpl.numberTo0x(constants.TX_DEFAULT_GAS);
   static gasTxBaseCost = EthImpl.numberTo0x(constants.TX_BASE_COST);
+  static gasTxHollowAccountCreation = EthImpl.numberTo0x(constants.TX_HOLLOW_ACCOUNT_CREATION_GAS);
   static ethTxType = 'EthereumTransaction';
   static ethEmptyTrie = '0x56e81f171bcc55a6ff8345e692c0f86e5b48e01b996cadc001622fb5e363b421';
   static defaultGasUsedRatio = 0.5;
@@ -325,8 +326,11 @@ export class EthImpl implements Eth {
   async estimateGas(transaction: any, _blockParam: string | null, requestId?: string) {
     const requestIdPrefix = formatRequestIdMessage(requestId);
     this.logger.trace(`${requestIdPrefix} estimateGas(transaction=${JSON.stringify(transaction)}, _blockParam=${_blockParam})`);
+    //this checks whether this is a transfer transaction and not a contract function execution
     if (!transaction || !transaction.data || transaction.data === '0x') {
-      return EthImpl.gasTxBaseCost;
+      const toAccount = await this.mirrorNodeClient.getAccount(transaction.to);
+      // when account exists return default base gas, otherwise return the minimum amount of gas to create an account entity
+      return toAccount ? EthImpl.gasTxBaseCost : EthImpl.gasTxHollowAccountCreation;
     } else {
       return EthImpl.defaultGas;
     }
diff --git a/packages/relay/tests/lib/eth.spec.ts b/packages/relay/tests/lib/eth.spec.ts
index 7221d7b623..12a4784366 100644
--- a/packages/relay/tests/lib/eth.spec.ts
+++ b/packages/relay/tests/lib/eth.spec.ts
@@ -2218,19 +2218,33 @@ describe('Eth calls using MirrorNode', async function () {
     expect(gas).to.equal(EthImpl.defaultGas);
   });
 
+  it('eth_estimateGas transfer to existing account', async function() {
+    const receiverAddress = '0x5b98Ce3a4D1e1AC55F15Da174D5CeFcc5b8FB994';
+    mock.onGet(`accounts/${receiverAddress}`).reply(200, { address: receiverAddress });
+
+    const gas = await ethImpl.estimateGas({
+      to: receiverAddress,
+      value: 100_000_000_000
+    }, null);
+    expect(gas).to.equal(EthImpl.gasTxBaseCost);
+  });
+
   it('eth_estimateGas empty call returns transfer cost', async function () {
+    mock.onGet(`accounts/undefined`).reply(404);
     const gas = await ethImpl.estimateGas({}, null);
-    expect(gas).to.equal(EthImpl.gasTxBaseCost);
+    expect(gas).to.equal(EthImpl.gasTxHollowAccountCreation);
   });
 
   it('eth_estimateGas empty input transfer cost', async function () {
+    mock.onGet(`accounts/undefined`).reply(404);
     const gas = await ethImpl.estimateGas({ data: "" }, null);
-    expect(gas).to.equal(EthImpl.gasTxBaseCost);
+    expect(gas).to.equal(EthImpl.gasTxHollowAccountCreation);
   });
 
   it('eth_estimateGas zero input returns transfer cost', async function () {
+    mock.onGet(`accounts/undefined`).reply(404);
     const gas = await ethImpl.estimateGas({ data: "0x" }, null);
-    expect(gas).to.equal(EthImpl.gasTxBaseCost);
+    expect(gas).to.equal(EthImpl.gasTxHollowAccountCreation);
   });
 
   it('eth_gasPrice', async function () {
diff --git a/packages/relay/tests/lib/openrpc.spec.ts b/packages/relay/tests/lib/openrpc.spec.ts
index be77993d19..09d382e3e9 100644
--- a/packages/relay/tests/lib/openrpc.spec.ts
+++ b/packages/relay/tests/lib/openrpc.spec.ts
@@ -196,6 +196,7 @@ describe("Open RPC Specification", function () {
     });
 
     it('should execute "eth_estimateGas"', async function () {
+        mock.onGet(`accounts/undefined`).reply(404);
         const response = await ethImpl.estimateGas({}, null);
 
         validateResponseSchema(methodsResponseSchema.eth_estimateGas, response);
diff --git a/packages/server/tests/acceptance/rpc_batch2.spec.ts b/packages/server/tests/acceptance/rpc_batch2.spec.ts
index e7e164888b..9e389e26b1 100644
--- a/packages/server/tests/acceptance/rpc_batch2.spec.ts
+++ b/packages/server/tests/acceptance/rpc_batch2.spec.ts
@@ -49,6 +49,7 @@ describe('@api-batch-2 RPC Server Acceptance Tests', function () {
     let contractExecuteTimestamp;
     let mirrorContract;
     let mirrorContractDetails;
+    let mirrorSecondaryAccount;
     let requestId;
 
     const CHAIN_ID = process.env.CHAIN_ID || 0;
@@ -99,6 +100,7 @@ describe('@api-batch-2 RPC Server Acceptance Tests', function () {
 
             // get contract result details
             mirrorContractDetails = await mirrorNode.get(`/contracts/${contractId}/results/${contractExecuteTimestamp}`, requestId);
+            mirrorSecondaryAccount = (await mirrorNode.get(`accounts?account.id=${accounts[1].accountId}`, requestId)).accounts[0];
 
             const latestBlock = (await mirrorNode.get(`/blocks?limit=1&order=desc`, requestId)).blocks[0];
             blockNumberAtStartOfTests = latestBlock.number;
@@ -117,6 +119,32 @@ describe('@api-batch-2 RPC Server Acceptance Tests', function () {
                 expect(res).to.not.be.equal('0x0');
             });
 
+            it('@release should execute "eth_estimateGas" for contract call', async function() {
+                const res = await relay.call('eth_estimateGas', [{
+                    to: mirrorContract.evm_address,
+                    data: BASIC_CONTRACT_PING_CALL_DATA
+                }], requestId);
+                expect(res).to.contain('0x');
+                expect(res).to.equal(EthImpl.defaultGas);
+            });
+
+            it('@release should execute "eth_estimateGas" for existing account', async function() {
+                const res = await relay.call('eth_estimateGas', [{
+                    to: mirrorSecondaryAccount.evm_address
+                }], requestId);
+                expect(res).to.contain('0x');
+                expect(res).to.equal(EthImpl.gasTxBaseCost);
+            });
+
+            it('@release should execute "eth_estimateGas" hollow account creation', async function() {
+                const hollowAccount = ethers.Wallet.createRandom();
+                const res = await relay.call('eth_estimateGas', [{
+                    to: hollowAccount.address
+                }], requestId);
+                expect(res).to.contain('0x');
+                expect(res).to.equal(EthImpl.gasTxHollowAccountCreation);
+            });
+
             it('should execute "eth_estimateGas" with to, from, value and gas filed', async function () {
                 const res = await relay.call('eth_estimateGas', [{
                     from: '0x114f60009ee6b84861c0cdae8829751e517bc4d7',