diff --git a/packages/streamdown/__tests__/list-item-paragraphs.test.tsx b/packages/streamdown/__tests__/list-item-paragraphs.test.tsx
new file mode 100644
index 00000000..4ba9b5cf
--- /dev/null
+++ b/packages/streamdown/__tests__/list-item-paragraphs.test.tsx
@@ -0,0 +1,23 @@
+import { render } from "@testing-library/react";
+import { describe, expect, it } from "vitest";
+import { Streamdown } from "../index";
+
+describe("list item paragraph wrapping", () => {
+  it("does not keep paragraph wrappers for loose list items", () => {
+    const markdown = `
+## Test
+
+- hello
+
+- world
+`;
+    const { container } = render(<Streamdown>{markdown}</Streamdown>);
+
+    const items = container.querySelectorAll('[data-streamdown="list-item"]');
+
+    expect(items).toHaveLength(2);
+    for (const item of items) {
+      expect(item.querySelector("p")).toBeNull();
+    }
+  });
+});
diff --git a/packages/streamdown/lib/components.tsx b/packages/streamdown/lib/components.tsx
index 2449ca3a..b27847f9 100644
--- a/packages/streamdown/lib/components.tsx
+++ b/packages/streamdown/lib/components.tsx
@@ -189,13 +189,25 @@ type LiProps = WithNode<JSX.IntrinsicElements["li"]>;
 const MemoLi = memo<LiProps>(
   ({ children, className, node, ...props }: LiProps) => {
     const cn = useCn();
+
+    const childArray = Array.isArray(children)
+      ? children.filter((child) => child !== "\n" && child !== "")
+      : [children];
+
+    const normalizedChildren =
+      childArray.length === 1 &&
+      isValidElement(childArray[0]) &&
+      childArray[0].type === "p"
+        ? childArray[0].props.children
+        : children;
+
     return (
       <li
         className={cn("py-1 [&>p]:inline", className)}
         data-streamdown="list-item"
         {...props}
       >
-        {children}
+        {normalizedChildren}
       </li>
     );
   },