diff --git a/changelog/7758.bugfix.rst b/changelog/7758.bugfix.rst
new file mode 100644
index 00000000000..a3119b46c0d
--- /dev/null
+++ b/changelog/7758.bugfix.rst
@@ -0,0 +1 @@
+Fixed an issue where some files in packages are getting lost from ``--lf`` even though they contain tests that failed. Regressed in pytest 5.4.0.
diff --git a/src/_pytest/cacheprovider.py b/src/_pytest/cacheprovider.py
index b04305ed9d2..e7c96ba3647 100755
--- a/src/_pytest/cacheprovider.py
+++ b/src/_pytest/cacheprovider.py
@@ -29,6 +29,7 @@
 from _pytest.fixtures import FixtureRequest
 from _pytest.main import Session
 from _pytest.python import Module
+from _pytest.python import Package
 from _pytest.reports import TestReport
 
 
@@ -233,7 +234,10 @@ def __init__(self, lfplugin: "LFPlugin") -> None:
     def pytest_make_collect_report(
         self, collector: nodes.Collector
     ) -> Optional[CollectReport]:
-        if isinstance(collector, Module):
+        # Packages are Modules, but _last_failed_paths only contains
+        # test-bearing paths and doesn't try to include the paths of their
+        # packages, so don't filter them.
+        if isinstance(collector, Module) and not isinstance(collector, Package):
             if Path(str(collector.fspath)) not in self.lfplugin._last_failed_paths:
                 self.lfplugin._skipped_files += 1
 
diff --git a/testing/test_cacheprovider.py b/testing/test_cacheprovider.py
index a911257ce24..57b245c7d5c 100644
--- a/testing/test_cacheprovider.py
+++ b/testing/test_cacheprovider.py
@@ -984,6 +984,36 @@ def test_pass(): pass
         )
         assert result.ret == 0
 
+    def test_packages(self, testdir: Testdir) -> None:
+        """Regression test for #7758.
+
+        The particular issue here was that Package nodes were included in the
+        filtering, being themselves Modules for the __init__.py, even if they
+        had failed Modules in them.
+
+        The tests includes a test in an __init__.py file just to make sure the
+        fix doesn't somehow regress that, it is not critical for the issue.
+        """
+        testdir.makepyfile(
+            **{
+                "__init__.py": "",
+                "a/__init__.py": "def test_a_init(): assert False",
+                "a/test_one.py": "def test_1(): assert False",
+                "b/__init__.py": "",
+                "b/test_two.py": "def test_2(): assert False",
+            },
+        )
+        testdir.makeini(
+            """
+            [pytest]
+            python_files = *.py
+            """
+        )
+        result = testdir.runpytest()
+        result.assert_outcomes(failed=3)
+        result = testdir.runpytest("--lf")
+        result.assert_outcomes(failed=3)
+
 
 class TestNewFirst:
     def test_newfirst_usecase(self, testdir):