diff --git a/rse/plugins/org.eclipse.rse.services/src/org/eclipse/rse/services/shells/AbstractHostShellOutputReader.java b/rse/plugins/org.eclipse.rse.services/src/org/eclipse/rse/services/shells/AbstractHostShellOutputReader.java
index f6543de366f..1203cc4e58c 100644
--- a/rse/plugins/org.eclipse.rse.services/src/org/eclipse/rse/services/shells/AbstractHostShellOutputReader.java
+++ b/rse/plugins/org.eclipse.rse.services/src/org/eclipse/rse/services/shells/AbstractHostShellOutputReader.java
@@ -12,7 +12,7 @@
  * Emily Bruner, Mazen Faraj, Adrian Storisteanu, Li Ding, and Kent Hawley.
  * 
  * Contributors:
- * {Name} (company) - description of contribution.
+ * Martin Oberhuber (Wind River) - [197848] Fix shell terminated state when remote dies
  *******************************************************************************/
 
 package org.eclipse.rse.services.shells;
@@ -132,7 +132,6 @@ public abstract class AbstractHostShellOutputReader  extends Thread implements I
 		}
 	}
 
-
 	public void fireOutputChanged(IHostShellChangeEvent event)
 	{
 		for (int i = 0; i < _listeners.size(); i++)
@@ -158,7 +157,6 @@ public abstract class AbstractHostShellOutputReader  extends Thread implements I
 	{
 		if (_keepRunning)
 		{
-
 			_waitIncrement = 0;
 			//dispose();
 		}
@@ -172,15 +170,18 @@ public abstract class AbstractHostShellOutputReader  extends Thread implements I
 			{
 				Thread.sleep(_waitIncrement);
 				Thread.yield();
+				handle();
 			}
 			catch (InterruptedException e)
 			{
-				e.printStackTrace();
 				finish();
-				return;
+				_keepRunning = false;
 			}
-
-			handle();
+		}
+		if (!isErrorReader()) {
+			//Bug 197848: Fire empty event as notification that we are done
+			HostShellChangeEvent event = new HostShellChangeEvent(_hostShell, this, 0, 0);
+			fireOutputChanged(event);
 		}
 	}
 	
diff --git a/rse/plugins/org.eclipse.rse.subsystems.shells.core/src/org/eclipse/rse/internal/subsystems/shells/servicesubsystem/OutputRefreshJob.java b/rse/plugins/org.eclipse.rse.subsystems.shells.core/src/org/eclipse/rse/internal/subsystems/shells/servicesubsystem/OutputRefreshJob.java
index 768471d328b..77fc6278d9f 100644
--- a/rse/plugins/org.eclipse.rse.subsystems.shells.core/src/org/eclipse/rse/internal/subsystems/shells/servicesubsystem/OutputRefreshJob.java
+++ b/rse/plugins/org.eclipse.rse.subsystems.shells.core/src/org/eclipse/rse/internal/subsystems/shells/servicesubsystem/OutputRefreshJob.java
@@ -13,6 +13,7 @@
  * Contributors:
  * Martin Oberhuber (Wind River) - [168975] Move RSE Events API to Core
  * Martin Oberhuber (Wind River) - [186773] split ISystemRegistryUI from ISystemRegistry
+ * Martin Oberhuber (Wind River) - [197848] Fix shell terminated state when remote dies
  ********************************************************************************/
 
 package org.eclipse.rse.internal.subsystems.shells.servicesubsystem;
@@ -24,6 +25,7 @@ import org.eclipse.rse.core.RSECorePlugin;
 import org.eclipse.rse.core.events.ISystemResourceChangeEvents;
 import org.eclipse.rse.core.events.SystemResourceChangeEvent;
 import org.eclipse.rse.core.model.ISystemRegistry;
+import org.eclipse.rse.core.subsystems.ISubSystem;
 import org.eclipse.rse.internal.subsystems.shells.core.ShellStrings;
 import org.eclipse.rse.subsystems.shells.core.subsystems.IRemoteCommandShell;
 import org.eclipse.rse.subsystems.shells.core.subsystems.IRemoteOutput;
@@ -87,6 +89,17 @@ public class OutputRefreshJob extends UIJob
 					registry.fireEvent(
 							new SystemResourceChangeEvent(_command, ISystemResourceChangeEvents.EVENT_PROPERTY_CHANGE, _command.getCommandSubSystem()));
 				}
+				
+				//Bug 197848: Artificial event for shell termination
+				if (_outputs.length == 0 && !_command.isActive()) {
+					ISubSystem subsys = _command.getCommandSubSystem();
+					//update action states in commands view
+					registry.fireEvent(
+							new SystemResourceChangeEvent(_command, ISystemResourceChangeEvents.EVENT_COMMAND_SHELL_FINISHED, subsys));
+					//update "connected" overlay in SystemView
+					registry.fireEvent(
+							new SystemResourceChangeEvent(_command, ISystemResourceChangeEvents.EVENT_REFRESH, subsys));
+				}
 			}
 			}
 			catch (Exception e)