diff --git a/crates/red_knot_python_semantic/resources/mdtest/call/union.md b/crates/red_knot_python_semantic/resources/mdtest/call/union.md
index d76fc2ed2b4225..b3615496c1fe9d 100644
--- a/crates/red_knot_python_semantic/resources/mdtest/call/union.md
+++ b/crates/red_knot_python_semantic/resources/mdtest/call/union.md
@@ -175,3 +175,29 @@ def _(flag: bool):
     # error: [conflicting-argument-forms] "Argument is used as both a value and a type form in call"
     reveal_type(f(int))  # revealed: str | Literal[True]
 ```
+
+## Size limit on unions of literals
+
+Beyond a certain size, large unions of literal types collapse to their nearest super-type (`int`,
+`bytes`, `str`).
+
+```py
+from typing import Literal
+
+def _(literals_2: Literal[0, 1], b: bool, flag: bool):
+    literals_4 = 2 * literals_2 + literals_2  # Literal[0, 1, 2, 3]
+    literals_16 = 4 * literals_4 + literals_4  # Literal[0, 1, .., 15]
+    literals_64 = 4 * literals_16 + literals_4  # Literal[0, 1, .., 63]
+    literals_128 = 2 * literals_64 + literals_2  # Literal[0, 1, .., 127]
+
+    # Going beyond the MAX_UNION_LITERALS limit (currently 200):
+    literals_256 = 16 * literals_16 + literals_16
+    reveal_type(literals_256)  # revealed: int
+
+    # Going beyond the limit when another type is already part of the union
+    bool_and_literals_128 = b if flag else literals_128  # bool | Literal[0, 1, ..., 127]
+    literals_128_shifted = literals_128 + 128  # Literal[128, 129, ..., 255]
+
+    # Now union the two:
+    reveal_type(bool_and_literals_128 if flag else literals_128_shifted)  # revealed: int
+```
diff --git a/crates/red_knot_python_semantic/src/types/builder.rs b/crates/red_knot_python_semantic/src/types/builder.rs
index 43f46cf715c505..bc2b1fb802771c 100644
--- a/crates/red_knot_python_semantic/src/types/builder.rs
+++ b/crates/red_knot_python_semantic/src/types/builder.rs
@@ -51,6 +51,10 @@ enum UnionElement<'db> {
     Type(Type<'db>),
 }
 
+// TODO increase this once we extend `UnionElement` throughout all union/intersection
+// representations, so that we can make large unions of literals fast in all operations.
+const MAX_UNION_LITERALS: usize = 200;
+
 pub(crate) struct UnionBuilder<'db> {
     elements: Vec<UnionElement<'db>>,
     db: &'db dyn Db,
@@ -93,10 +97,15 @@ impl<'db> UnionBuilder<'db> {
             // means we shouldn't add it. Otherwise, add a new `UnionElement::StringLiterals`
             // containing it.
             Type::StringLiteral(literal) => {
+                let mut too_large = false;
                 let mut found = false;
                 for element in &mut self.elements {
                     match element {
                         UnionElement::StringLiterals(literals) => {
+                            if literals.len() >= MAX_UNION_LITERALS {
+                                too_large = true;
+                                break;
+                            }
                             literals.insert(literal);
                             found = true;
                             break;
@@ -107,6 +116,10 @@ impl<'db> UnionBuilder<'db> {
                         _ => {}
                     }
                 }
+                if too_large {
+                    let replace_with = KnownClass::Str.to_instance(self.db);
+                    return self.add(replace_with);
+                }
                 if !found {
                     self.elements
                         .push(UnionElement::StringLiterals(FxOrderSet::from_iter([
@@ -117,9 +130,14 @@ impl<'db> UnionBuilder<'db> {
             // Same for bytes literals as for string literals, above.
             Type::BytesLiteral(literal) => {
                 let mut found = false;
+                let mut too_large = false;
                 for element in &mut self.elements {
                     match element {
                         UnionElement::BytesLiterals(literals) => {
+                            if literals.len() >= MAX_UNION_LITERALS {
+                                too_large = true;
+                                break;
+                            }
                             literals.insert(literal);
                             found = true;
                             break;
@@ -130,6 +148,10 @@ impl<'db> UnionBuilder<'db> {
                         _ => {}
                     }
                 }
+                if too_large {
+                    let replace_with = KnownClass::Bytes.to_instance(self.db);
+                    return self.add(replace_with);
+                }
                 if !found {
                     self.elements
                         .push(UnionElement::BytesLiterals(FxOrderSet::from_iter([
@@ -140,9 +162,14 @@ impl<'db> UnionBuilder<'db> {
             // And same for int literals as well.
             Type::IntLiteral(literal) => {
                 let mut found = false;
+                let mut too_large = false;
                 for element in &mut self.elements {
                     match element {
                         UnionElement::IntLiterals(literals) => {
+                            if literals.len() >= MAX_UNION_LITERALS {
+                                too_large = true;
+                                break;
+                            }
                             literals.insert(literal);
                             found = true;
                             break;
@@ -153,6 +180,10 @@ impl<'db> UnionBuilder<'db> {
                         _ => {}
                     }
                 }
+                if too_large {
+                    let replace_with = KnownClass::Int.to_instance(self.db);
+                    return self.add(replace_with);
+                }
                 if !found {
                     self.elements
                         .push(UnionElement::IntLiterals(FxOrderSet::from_iter([literal])));