diff --git a/app/finders/labels_finder.rb b/app/finders/labels_finder.rb
index 042d792dada..ce432ddbfe6 100644
--- a/app/finders/labels_finder.rb
+++ b/app/finders/labels_finder.rb
@@ -83,7 +83,12 @@ class LabelsFinder < UnionFinder
   def projects
     return @projects if defined?(@projects)
 
-    @projects = skip_authorization ? Project.all : ProjectsFinder.new(current_user: current_user).execute
+    @projects = if skip_authorization
+                  Project.all
+                else
+                  ProjectsFinder.new(params: { non_archived: true }, current_user: current_user).execute
+                end
+
     @projects = @projects.in_namespace(params[:group_id]) if group?
     @projects = @projects.where(id: params[:project_ids]) if projects?
     @projects = @projects.reorder(nil)
diff --git a/changelogs/unreleased/hb-hide-archived-labels-from-group-issue-tracker.yml b/changelogs/unreleased/hb-hide-archived-labels-from-group-issue-tracker.yml
new file mode 100644
index 00000000000..3b465d84126
--- /dev/null
+++ b/changelogs/unreleased/hb-hide-archived-labels-from-group-issue-tracker.yml
@@ -0,0 +1,4 @@
+---
+title: Hide archived project labels from group issue tracker
+merge_request: 12547
+author: Horacio Bertorello
diff --git a/spec/finders/labels_finder_spec.rb b/spec/finders/labels_finder_spec.rb
index 1724cdba830..95d96354b77 100644
--- a/spec/finders/labels_finder_spec.rb
+++ b/spec/finders/labels_finder_spec.rb
@@ -49,12 +49,12 @@ describe LabelsFinder do
     end
 
     context 'filtering by group_id' do
-      it 'returns labels available for any project within the group' do
+      it 'returns labels available for any non-archived project within the group' do
         group_1.add_developer(user)
-
+        project_1.archive!
         finder = described_class.new(user, group_id: group_1.id)
 
-        expect(finder.execute).to eq [group_label_2, project_label_1, group_label_1, project_label_5]
+        expect(finder.execute).to eq [group_label_2, group_label_1, project_label_5]
       end
     end