diff --git a/homeassistant/components/matter/water_heater.py b/homeassistant/components/matter/water_heater.py
index fc67d663a6e6..5f3c0ce3a95e 100644
--- a/homeassistant/components/matter/water_heater.py
+++ b/homeassistant/components/matter/water_heater.py
@@ -168,10 +168,15 @@ class MatterWaterHeater(MatterEntity, WaterHeaterEntity):
         self._attr_target_temperature = self._get_temperature_in_degrees(
             clusters.Thermostat.Attributes.OccupiedHeatingSetpoint
         )
+        system_mode = self.get_matter_attribute_value(
+            clusters.Thermostat.Attributes.SystemMode
+        )
         boost_state = self.get_matter_attribute_value(
             clusters.WaterHeaterManagement.Attributes.BoostState
         )
-        if boost_state == clusters.WaterHeaterManagement.Enums.BoostStateEnum.kActive:
+        if system_mode == clusters.Thermostat.Enums.SystemModeEnum.kOff:
+            self._attr_current_operation = STATE_OFF
+        elif boost_state == clusters.WaterHeaterManagement.Enums.BoostStateEnum.kActive:
             self._attr_current_operation = STATE_HIGH_DEMAND
         else:
             self._attr_current_operation = STATE_ECO
@@ -218,6 +223,7 @@ DISCOVERY_SCHEMAS = [
             clusters.Thermostat.Attributes.AbsMinHeatSetpointLimit,
             clusters.Thermostat.Attributes.AbsMaxHeatSetpointLimit,
             clusters.Thermostat.Attributes.LocalTemperature,
+            clusters.Thermostat.Attributes.SystemMode,
             clusters.WaterHeaterManagement.Attributes.FeatureMap,
         ),
         optional_attributes=(
diff --git a/tests/components/matter/test_water_heater.py b/tests/components/matter/test_water_heater.py
index 9c2def1d08a8..9311425689f2 100644
--- a/tests/components/matter/test_water_heater.py
+++ b/tests/components/matter/test_water_heater.py
@@ -226,6 +226,20 @@ async def test_update_from_water_heater(
     assert state
     assert state.state == STATE_ECO
 
+    # confirm water heater state is 'off' when SystemMode is set to 0 (kOff)
+    set_node_attribute(matter_node, 2, 513, 28, 0)
+    await trigger_subscription_callback(hass, matter_client)
+    state = hass.states.get(entity_id)
+    assert state
+    assert state.state == STATE_OFF
+
+    # confirm water heater state returns to 'eco' when SystemMode is set back to 4 (kHeat)
+    set_node_attribute(matter_node, 2, 513, 28, 4)
+    await trigger_subscription_callback(hass, matter_client)
+    state = hass.states.get(entity_id)
+    assert state
+    assert state.state == STATE_ECO
+
 
 @pytest.mark.parametrize("node_fixture", ["silabs_water_heater"])
 async def test_water_heater_turn_on_off(